Ladies and gentlemen,

Thank you very much for having me here today.

As you know, today is the second day of the European Council in Brussels. In their conclusions today, the heads of states are expected to set an official start date for the negotiations with Croatia and Turkey, as well as determining their conditions of entry.

As I was following the recent debates in the newspapers and around political negotiating tables, it has become clear that the debate over Turkey now dominates the political agenda of the EU. On Turkey, everyone has an opinion. It is a lively and very relevant debate where everyone seems to have a strong argument pro or contra.

Turkish membership is an issue that will force the EU to come to terms with several of its outstanding dilemmas – so overall I think the discussion itself is a very positive development for the EU. However, I find it problematic that Turkey seems to be pushing the Balkans off the EU’s agenda.

This contradicts the clear indications that our work is South Eastern Europe is far from finished, and has occurred despite the fact that the countries of the Western Balkans were given a “European perspective” in 2003.

Ladies and gentlemen, you all are aware, but let me emphasise this – 2005 will be a very testing year for all of us, and when looking to Kosovo, it seems that the possibility of renewed violence is not entirely inconceivable.

In a sense, the Balkan’s position in today’s EU dialogue aptly symbolises the current state of the overall European policy regarding enlargement. We have a very ambitious and visionary Commission and a most committed Enlargement Commissioner, Olli Rehn. The Western Balkans are now within the Directorate General for Enlargement, which – even though was an administrative decision – has sent a strong political message to South Eastern Europe.

However, at the same time, the EU’s capacities are currently overwhelmed by the enormous task of integrating its new member states. Also, there is growing Euroscepticism and a growing enlargement fatigue. At the moment, Bosnia and Herzegovina, Serbia and Montenegro, the former Yugoslav Republic of Macedonia and Albania not only have to shoot at a moving target, but have to do so in the dark. To be honest, I feel that today, no-one in the EU actually knows what the real European prospects of these countries are.

At the same time, the EU is getting tougher about further expansion (note for instance the French suggestion for compulsory referenda for any new candidates after Croatia), and the EU has introduced "safeguard clauses" into negotiations with Romania and Bulgaria, which will allow for the postponement of the accession date if implementation of the acquis communautaire is not satisfactory.

Also, there are some strange trends emerging in the EU’s current peripheries. For domestic political purposes, Ukraine’s pro-Western forces are looking toward Brussels for a promise of EU membership. I also notice that, more and more, politicians are issuing conditions and warnings. The Serbian government says the Kosovo solution can only be settled once the province becomes an EU region… the Turkish Prime Minister says that violence from Islamic extremists could escalate if the EU rejects Turkey as a member.

The EU has never been forced to enlarge – this is a new reality, a reality that European politicians and citizens might not be ready for.

Despite all of this – I came here today to emphasise that the European Union cannot afford to lose sight of the Balkans. I believe it has the responsibility to keep it permanently on its political agenda. Not just because it needs to react to the insistent knocking of these countries, but also because it is a historic opportunity to finally get the Balkans “right”.

While political and public discourse cannot avoid making references to the idea of “EU membership”, there is a consensus among policy-makers that the first and more important priority in the Balkans is stabilisation, and economic development.

Ever since its creation in 1999, the Stability Pact has been pushing for growth and stability in this region. We coordinate the work of over sixty participating international organisations and governments, and I can’t emphasise enough the importance of the Trans-Atlantic connection, and the extremely important role of the US.

We are also working hard on encouraging regional cooperation between the governments of South Eastern Europe. The necessity of this cooperation has been recognised by both the EU and the region’s governments, and the tangible benefits are already obvious.

To give you an example, everyone agrees that the network of 28 bilateral free trade agreements – which are all in force now – will stimulate intra-regional trade, and attract foreign direct investment. There is also discussion on moving toward a South European Free Trade Agreement, SEEFTA, which would create an advanced multi-lateral free trade zone.

At the same time, the Energy Community South Eastern Europe (ECSEE) will not only speed up the modernisation of the energy infrastructure, it would also halve investment requirements, and save the region billions of euros. The common energy market will also increase the efficiency of energy trade and consumption, and eventually integrate the region with the internal EU energy market. ECSEE is a unique political opportunity for the region, as – similarly to the European Coal and Steel Community – this undertaking could serve as a powerful catalyst of greater economic and political integration.

In addition, much has been achieved in the area of fighting corruption and organised crime, as well as police cooperation. Through the Stability Pact’s related initiatives, the region’s governments have developed joint campaigns and work programmes. This close cooperation has already born fruit – for example through several Memoranda of Understanding, successful joint operations, and most recently, through the EU’s positive assessment of the operation of the Bucharest-based Center for Combating Trans-border Crime. This study concluded that the SECI Center could one day function as part of Europol.

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If we look at the region in terms of figures, a mixed record emerges, in which the  weaknesses still outweigh the strengths. Just to give a few examples – Today, 50% of the Bosnians and the Albanians live close to or below the poverty line. The current export performance of the entire SP region (including Moldova) is lower than that of Hungary. Unemployment is staggeringly high across the region, slowly pushing the economies and social welfare nets toward bankruptcy.

However, there are some surprisingly positive figures too. The last few years have seen significant economic development. For instance, inflation has been pushed under 5% in all countries. In Bosnia it is under 1%. In Croatia and Serbia and Montenegro the GDP growth forecast for this year is 5% GDP, which is much higher than the EU average. Croatia and Serbia and Montenegro attracted 1 billion euro each in foreign direct investment in 2003.

During 2004, my key message to the region was that governments need to follow up on all the political commitments they have made. “Implementation” is not only a buzzword within the EU enlargement context, but it will, undeniably, be the main challenge that faces South Eastern Europe in the coming years. Simultaneously, the region will also have to demonstrate an increased capacity to develop better ownership of the numerous initiatives that were launched within the framework of the Stability Pact.

On the EU’s side, the main task for politicians will be to continue to work toward a consistent policy in an attempt to stabilise this region. The EU needs to keep the Stabilisation and Association efforts well on track, and deliver on its Thessaloniki commitments, both on the political and the programming level.

If the EU does not pay sufficient attention, the region will remain unstable and will continue to haunt the EU as a potentially unstoppable source of illegal migrants, prostitution, and organised crime. In fact, if the EU does not act, the region will join us sooner than we think, without us noticing. Let me give you a few figures.

• 300,000 Moldovans are reported to have Romanian passports and will automatically become EU citizens when Romania joins in 2007. (According to other estimates, the figure might be as high as 600,000, which is one third of the active labour force!)
• The drive to go to the EU is so strong that in the case of Bosnia, a recent survey found that 70% of the population see EU membership as a chance to move to another EU country.

That shows the prevalence of great misunderstandings about what the EU stands for and how it functions. Perhaps we could consider that it is also part of our responsibility to help these countries to have an informed debate, and start managing expectations. Let me give you two arguments.

1. I often get the impression that these countries do not fully understand that the adoption – and implementation – of the 100,000 pages of the acquis communautaire will not lead automatically to Western European levels of prosperity.

2. Another problem is that the countries knocking on the EU’s door usually perceive EU membership as a key to a treasure box, structural funds upon cohesion funds upon money for every purpose. However, EU membership is expensive and requires advanced administrative capacities, and that is already becoming a reality for countries of the Western Balkans. Just to give a few examples.

• The Commission’s CARDs funding is available, but the region’s governments lack the necessary capacity to exploit the full potential of the funding opportunities;
• Also, as we know from our Infrastructure Steering group – which brings together the Commission, various IFIs and the Stability Pact – the countries have limited ability to implement viable infrastructure projects;
• And finally, the Commission will allow access to various Community programmes from 2005 (education, youth, enterprise and entrepreneurship and others), but the countries would have to pay into the EU budget to allow their citizens to participate.

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Looking to the year 2005, we also have to talk about what awaits the UK during its EU Presidency in the second half of the year, and what the main challenges will be regarding the Balkans.

In the past decade, the British government has been active in the Balkans, deploying troops, providing development aid and funding various initiatives, for instance in the areas of trade liberalisation, media development and fighting organised crime. The government has substantial experience, and if I understand correctly, it is currently setting up an inter-ministerial unit to deal with post-conflict development.

But 2005 holds many challenges. The fate of the Serbia and Montenegro union is still undecided, while Belgrade and Prishtina do not wish to negotiate with each other about Kosovo’s future status. At the moment, only the international community can bring them to a negotiating table. The EU will need to have a consistent policy, and we will need to make sure that – within the Contact Group – Russia is on board. Whatever solution is found, it will have serious ramifications for the rest of the region.

In this regard, I also have to mention that despite the high stakes and the serious political and constitutional challenges, there does not seem to be a substantial political debate in Europe on Kosovo’s future status. Nobody in the international community seems willing to move first. This will make it difficult to arrive at a widely supported consensus solution.

But let us also look at the positives. I trust that the British recognise that beyond the strategic importance of achieving stability and peace on the EU’s doorstep, the EU can also use this region to its own advantage.

There will soon be tangible economic benefits from stabilising and developing this region. The Ukrainian developments have once again highlighted the wisdom of diversifying energy sources. It makes sense for all of us to be able, if we choose, to obtain energy directly from the Gulf and Turkey. In less than five years, this will be possible through the fully connected energy market, stretching from Helsinki to Istanbul.

The free trade area would upgrade these currently small economies into an integrated, liberalised market, which would provide swift and safe returns on Western investments. The growth patterns of these economies will likely be as dramatic as in the case of Ireland or Portugal in the recent past.

However, for now, 15 years after the disintegration of Yugoslavia, living standards in the Western Balkans are still below the 1991 average. Public disillusionment with government policies is high and politicians find it increasingly difficult to justify the necessary reforms. Undoubtedly, the transformation process will continue to be difficult, and the countries will see numerous elections before sustainable economic stability is achieved.

I therefore believe that the EU should make its position absolutely clear regarding the EU perspective for South Eastern Europe. This is more crucial than ever, as our ability to promote the further stabilisation and economic prosperity of the region is greatly dependent on this perspective being upheld. The EU will also need to keep the reform agenda alive, and design ways to keep the European perspective relevant.

Ladies and gentlemen, the international community showed great determination to stabilise this region, when it launched the Stability Pact in 1999. We cannot afford to wait for the Balkans to make international headlines again; we cannot allow the Balkans to descend into a black hole. We need to keep a watchful eye on the developments, and need to grab the historic momentum that is NOW, to come up with consistent strategies and keep providing assistance.

We cannot afford to lose the Balkans again, it would be a mistake we would all deeply regret.

Thank you very much.