By Matthias Williams

CHISINAU (Reuters) - An election in Moldova this month looks likely to produce a hung parliament, entrenching a split between pro-Western and pro-Russian forces at a time when concerns over corruption and democracy have soured its relations with the European Union.

The EU forged a deal on closer trade and political ties with the tiny ex-Soviet republic in 2014 and showered it with aid but it has become increasingly critical of Chisinau's track record on reforms.

Sandwiched between EU member Romania and Ukraine, Moldova has been dogged by scandals and its pro-Western government has failed to lift low living standards, driving many voters towards the Socialists, who favour closer ties with Russia.

Socialist leader Igor Dodon took the presidency in 2016. The presidency is not being contested in the February 24 election.

Opinion polls suggest no party will win a parliamentary majority, raising the prospect of prolonged wrangling or possibly further elections.

Vladimir Plahotniuc, an oil-to-hotels tycoon whose Democratic Party leads the government, could cobble together a coalition, as he did after the last election in 2014 despite winning only 19 out of 101 seats.

"Moldova has become a grey zone, a no-man's land between the East and the West," said Vladislav Kulminski, the head of Chisinau-based Institute for Strategic Initiatives.

"And elites who are in office today are very happy about it, because you get to define the rules, you get to write the rules and rewrite the rules, and you are not held accountable by either Brussels or Moscow."

BACKSLIDING

It is a far cry from 2012, when German Chancellor Angela Merkel, on a visit to Chisinau, praised the reforms of then-prime minister Vlad Filat and fielded questions about Moldova's prospects of joining the EU.

Seven years on, Filat is in jail for allegedly taking bribes - he denied wrongdoing - in a $1 billion corruption scandal known locally as the "theft of the century", which plunged the country of 3.5 million into a deep crisis in 2014-2015.

Moldova now ranks 117th out of 180 countries in Transparency International's Corruption Perceptions Index, down from 89th in 2009, when the EU launched an Eastern Partnership programme with six former Soviet states.

"Moldova is definitely a country that the remaining Eastern Partnership member states could learn from - how not to behave if they want to maintain good relations with the EU," said Cristina Gherasimov of the German Council on Foreign Relations.

The EU last year froze aid to Moldova after a local court struck down the victory of opposition leader Andrei Nastase in the Chisinau mayoral race on a technicality. The European Parliament declared Moldova "a state captured by oligarchic interests".

Plahotniuc's party has trumpeted the achievements of its government under Prime Minister Pavel Filip. The economy is growing, the banking system has stabilised and cooperation with the International Monetary Fund has resumed.

Nelly Sonic, Vice President of Lion Gri, one of Moldova's biggest wine exporters, said Plahotniuc's party has helped businesses with tax cuts.

Some Moldovans suspect that the Socialists and Plahotniuc, for all their public feuding, collaborate behind the scenes to carve up the state between them - a suggestion rejected by Dodon in a Reuters interview in January.

The Democrats cast themselves as the only party to stop Moldova turning back to Russia, which may have made the EU initially unsure of how to deal with the country's backsliding, Gherasimov said.

"By now it seems that the EU and the European governments have understood very well that this is a fake ideological and geopolitical battle with President Dodon and the Socialist Party which works to the advantage of both parties," she said.

But many Moldovans remain wary of Russia, which has proven an unreliable trade partner, slapping embargoes on wine and farm produce, including in 2014 when Moldova signed its EU accord.

Sonic shuns Russia for newer markets like China after losing millions of dollars during the embargoes.

"We are very uncomfortable selling our wines in Russia because it is associated with high risks...," she said.

(Additional reporting by Alexander Tanas; Editing by Gareth Jones)

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