In October 1934, a Bulgarian assassinated Aleksandar in Marseille. The assassin, an Ustase agent, had received assistance from Italy and Hungary. Yugoslavs genuinely grieved for their king. Even Aleksandar's opponents feared that his death would result in the disintegration of Yugoslavia. Croats and Slovenes especially feared subjection to Italy.

Prince Pavle, cousin of Aleksandar, nominated a three-man regency that ruled for Aleksandar's minor son, Petar II. Pavle hoped to liberalize the regime and reconcile the Serbs and Croats without altering the 1931 constitution. The government freed Macek and in 1935 held elections that revealed significant dissatisfaction. Pavle soon called on the Serb Milan Stojadinovi to form a cabinet. His new government granted amnesty to political prisoners and permitted political parties additional leeway, but it refused to restore democracy and failed to solve the Croatian problem. Croatian separatists clashed with the police; communist-inspired student activists fomented disorder; and Croatian militia organizations formed. Macek and other Croatian leaders welcomed rising domestic and international tensions as positive forces that would force a federalist solution, and they refused to compromise or even enumerate their demands to the government. Stojadinovic incurred the wrath of Serbian nationalists when he submitted an agreement with the Vatican on regulation of Catholic affairs; the Federal Assembly canceled the agreement, or Concordat, after Orthodox clergymen denounced it.

The assassination of Aleksandar deepened Yugoslavian mistrust of Italy, but confidence in France and Britain also dropped after those countries refused to back a League of Nations censure of Italy for harboring the assassins. Fearing isolation, Yugoslavia strengthened its ties with Germany, which became the main trading partner of Yugoslavia after the latter voted in the League in 1935 to impose economic sanctions on Italy for invading Ethiopia. Under Stojadinovic, however, movement began toward settlements with Bulgaria and Italy. In January 1937, Yugoslavia and Bulgaria signed an eternal-friendship pact violating the provisions of the Little Entente and weakening the Balkan Pact. In March Yugoslavia and Italy followed up a 1936 trade agreement with a treaty of friendship. In December Stojadinovic visited Mussolini and assured him that Yugoslavia would neither strengthen its relationship with Czechoslovakia and France nor recognize the Soviet Union. Still, Yugoslavia drew away from France only reluctantly, and public opinion remained firmly attached to the West.

Despite the support for democracy professed by the Stojadinovic government, many Yugoslavs feared he aspired to become a fascist dictator. His supporters adopted the fascist salute and uniformed themselves in green shirts. The dictatorial air of Stojadinovic, the Concordat, and accommodations with former enemies roused opponents in Serbia, with whom Macek struck up a quick friendship. Support for the prime minister dropped after the 1938 elections, and Pavle forced him to resign in February 1939. Dragisa Cvetkovic was then named premier.

Germany annexed Austria in 1937 and smashed the Little Entente by partitioning Czechoslovakia in 1938; by 1939 it had gained a stranglehold on the Yugoslavian economy. Pavle and Cvetkovic reaffirmed Yugoslavia's friendship with Germany and Italy, but tried in vain to loosen Germany's economic grip with appeals to Britain and France. Belgrade again professed friendship with Berlin and Rome after Italy occupied Albania in April 1939; but Yugoslav popular opinion grew more adamantly pro-Western, and in May the government revealed its true colors by secretly shipping its gold reserves to Britain and the United States. Both Berlin and Rome suspected Yugoslavia's motives.

Data as of December 1990