For decades, the Lumbardhi cinema in Kosovo - Europe's newest country - has given locals in the city of Prizren a window on the outside world. It has screened movies from Japan, China and the United States and hosted international artists for its annual documentary film festival.

But the venue has been dogged by financial problems and it was relying on a 1.5 million euro grant from the neighbouring European Union for renovations to its heating and drainage systems, according to its executive director, Ares Shporta.

Then on Oct. 7, Shporta received an email from EU officials saying the grant had been cancelled due to "ongoing measures imposed by the European Union on the government of Kosovo" - a reference to cuts to EU funding enacted in 2023 for what the bloc said was Prime Minister Albin Kurti's role in stoking ethnic tensions in northern Kosovo, which has a Serb majority.

"It shook the trust of the community in us, but also in the EU, which claims to be in support of cultural diversity," said Shporta in the lobby of the Lumbardhi, where a noisy space heater kept a smattering of patrons warm.

While the EU has not released a list of affected programs, two sources, including a senior diplomat, told Reuters more than a dozen projects totalling at least 150 million euros have stalled following the EU curbs. These include a 70-million-euro sewage treatment plant and a concert hall renovation. The sources spoke on condition of anonymity in order to speak candidly.

Pristina has downplayed the measures, but the fate of Lumbardhi and other projects identified by Reuters shows the impact on one of Europe's poorest countries.

The issue has resurfaced as Kosovo - which is majority ethnic Albanian but home to some 100,000 ethnic Serbs - prepares for elections on Feb. 9. And it could weigh on Kurti's chances of re-election, three analysts said.

Two private polls shared with Reuters showed Kurti's Vetevendosje party and coalition partners with around 40% of the vote - down from the 50.2% received in 2021. Some Kosovans are concerned at their country's isolation, according to political analyst Agon Maliqi.

"While most voters may be pleased that Kosovo has more control over the north, many might not be convinced that this is sustainable without international support," he said.

Some EU states want to lift the measures because they have not altered Kurti's policies and have hurt ordinary citizens, the senior diplomat and another official with direct knowledge of the situation told Reuters. But there is opposition from countries including Serbia-friendly France and Hungary.

The diplomat said the sanctions unfairly targeted Kosovo and not its northern neighbour Serbia, which has also played a role in inflaming tensions. But they added that there was no mechanism for rolling back the restrictions, despite their lack of efficacy.

An EU spokesperson described the measures as "temporary and reversible" but did not say which projects have been hit. They said that the EU would lift the sanctions if Kosovo de-escalated tensions in the north.

"Actions by the Kosovo Government...have so far not been conducive to this goal," the spokesperson said.