Excellencies, Ladies and Gentlemen.

I would like to start by thanking the co-organisers and sponsors for this timely conference.   I believe it marks not only a major activity within the economic chapter of the 2003 Action Plan of the Euro-Atlantic Partnership Council, but also it constitutes a core element within the Defence Economics initiative of the Stability Pact for South Eastern Europe in collaboration with NATO this year.  Let me express the hope that this conference will be a solid step forward in shaping a regional identity in both South Eastern Europe as well as Eastern Europe and developing a pool of shared knowledge in the area of defence conversion.

It is more than evident that there is no more military threat in the SEE region.  However, traditional concepts of national security are only one element of the approach the Stability Pact takes towards security and defence issues.  Security Sector Reform, Small Arms and Light Weapons, the continuing problems of antipersonnel land mines, military downsizing, fostering security dialogues, assisting civil-military cooperation, effective border security and management and the fight against organized crime, including trafficking and corruption, are all of considerable and continuing importance.  We see all these elements as an integral part of human dimension of security.

One of the most pressing and challenging issues facing the defence sector of South East Europe is how to restructure and downsize the military forces to conform with the new security situation and economic realities, especially in the light of the historic decisions on the enlargement of both EU and NATO that will improve the environment in which the Stability Pact operates.

Touching upon core topics of this conference, I see three different issues grouped under the military conversion umbrella: retraining of demobilized military personnel, conversion of military assets especially bases, and conversion of defence industries.  All of these have the potential to create very serious problems of financial, social and political nature in terms of employment and the development of businesses and social services and consequently deserve close consideration.

Obviously, each country faces a unique set of circumstances and challenges as it faces up to the economic and social costs of restructuring and inevitably downsizing its military or defence sector.  The legal, social, financial and political implications are enormous and individual to each nation.  However, we can observe a number of shared issues and each of the countries in the region should have access to a shared pool of knowledge and experience.

In the field of “defence economics”, the NATO Economics Directorate has taken the lead in the Stability Pact initiative and I am very satisfied with the level of our co-operation as well as by the progress achieved.   Successful partnership with our NATO colleagues made it possible to convene a group composed of NATO member nation experts to vet especially the programmes for assisting the transition to civilian life of discharged military personnel in some SEE countries, among them Albania, Bosnia, Bulgaria, Croatia, Romania.  

Valuable advice and expertise were provided in the development of national programmes, which – also very important - enhanced the credibility of those programmes vis-à-vis bilateral donors and financial institutions, especially the World Bank.   It is very important to note that we started to co-operate in a same manner with the former Yugoslav Republic of Macedonia, and Serbia and Montenegro.  

Like in many western countries, a shrinking military sector necessitated the closing of a large number of military installations which in turn created acute economic distress in particular local communities.   Again, working with NATO, we pursued a similar approach with an experts’ group review of plans, followed by showcasing to international donors.   

An added dimension, however, was the insistence of the pursuit of pilot projects that would pave the way to overall national strategies.   The idea was to start with teaching the countries concerned to “catch fish“ rather than “giving fish”.  This kept the emphasis on the development of a results-oriented process.  Initiatives are now underway in both Romania and Bulgaria.  Other countries that have expressed interest in this cooperation are Albania, Croatia, the former Yugoslav Republic of Macedonia and Moldova.  Co-operation with donors includes with the European Commission PHARE that should be the source of three million euro in 2004.

Finally, a new area for us, at the request of several regional countries, is the question of converting military industrial facilities to civilian use.   Several South East European countries have already raised the topic specifically, seeking guidance and help.  We are anxious to look at ways international assistance can be brought to bear to help ease the transition in this important field.  

This gets to the essence of how the Stability Pact functions and what it represents.  We do not control any bank accounts and thus have no specific capability to finance any project.  What we can do, however, is provide a forum for coordination and exchange of information on what else is happening in the region by which we can shape a regional agenda for donor consideration.  The Stability Pact is widely accepted as an umbrella, making it possible to bring together expertise of NATO, the European Union and IFIs in the different areas of concern.

Speaking about international cooperation in these fields, let me express my conviction, that a 'merging' of NATO’s expertise, namely in the field of base conversion and retraining, the intermediary role of the Stability Pact and the funds of the financial organisations and donors appear to be a pragmatic and efficient model, that has already resulted in very concrete cooperation.   Moreover, I am sure, the Stability Pact framework provides the opportunity for institutions to operate within their own competence and still achieve synergy of efforts.  

The concerns and challenges embodied in the question of defence sector conversion are undoubtedly economic, although our primary motivation remains security.  We consider the defence economics file as a cross-table issue.  As a consequence, we will consider possibilities to increase the visibility of this issue through presentation to the working table on economic issues.

As the next step – after this conference - SP and NATO should develop a "marketing package" for use with the donor community.   I will instruct my staff to move into this direction.  Once this package has been developed, SP to arrange presentations to donors on a bilateral basis (US, Norway, NL, etc) and to IFIs (WB, CEDB, EBRD) in cooperation with WT2 (for contacts if not for substance).  

I also believe there is a substantial role here for other international organisations (like UNDP), NGOs, for example the Geneva Centre for Democratic Control of Armed Forces and existing regional experience. 

Retraining, base conversion, defence industry reform and military budget transparency have to be seen - at least from my point of view – in a broader context of democratic control of the armed forces/security sector reform.  How can we assist here?  We are ready to develop further our two track approach: working with the Geneva Centre for the Democratic Control of Armed Forces to build capacity at the parliamentary level and using the Zagreb-based Regional Arms Control Verification and Implementation Assistance Centre of the Stability Pact (RACVIAC) to provide capacity-building at the officials level.  We are in touch with the both Centres in order to see how the Serbia and Montenegro and other countries in SEE could benefit more directly from these programmes.

Speaking about “experience sharing”, let me inform you that we are working very seriously on the question of how to increase the involvement of incoming EU members with specific transformation experience in order to expand tailored assistance to the region.   That is why we are also thinking about possible use of relevant Central European military transformation experience including military reforms for the countries of SEE.  I think that e.g. current discussion on military reform, especially downsizing, in the Czech Republic could serve as very relevant source of experience.

One of our comparative advantages in the Stability Pact is the fact, that we can also tackle the issue of defence conversion, including its economic and social consequences, from the point of view of our priorities in the area of economic reconstruction and development in SEE region.  

Let me point out some of them.  Creating a common market attractive for foreign investment is essential for the development of the region.  Further developing the network of free trade agreements including the development of a free trade area are necessary steps in this process.  Work in this direction is crucial for attracting foreign investment and preparing the region for future integration into the European market.

Additional cooperation in the energy sector will make it more attractive to investment while advancing integration into European structures.  Further developing the MoU on the Regional Electricity Market into a binding international treaty, as planned for the end of the year will be an important step in this direction.

European experience has shown the necessity to complement free movement of goods with that of people, requiring close cooperation in the broad area of visa liberalisation, border control and migration in general.   I would like to commend those countries in the region that have already taken important steps in this direction.  Others need to follow suit in order to allow full freedom of movement within the region.  

This is, on one side, what we may offer.  On the other, our friends from the region have to fully acknowledge that the onus for progress is on them.  They are responsible for seeing that these issues are addressed and that available international resources are effectively utilized.  There can clearly be no progress in this important area without the full commitment of the countries concerned.

Excellencies, Ladies and Gentlemen, thank you for your attention.