A year ago NATO had to intervene in the Federal Republic of Yugoslavia. President Milosevic had tried to resolve his political problems in Kosovo by expelling hundreds of thousands of people.

His message was brutal: Serbs and Albanians can not live together, so the Albanians must go.

That message flew in the face of everything we have been trying to do since the Second World War – to settle Europe’s differences through democratic cooperation.

The Stability Pact demonstrates that today’s Europe sets its sights high.

Our vision is a European future for this region. Today I visited the European Parliament. All the regional countries represented here have the prospect of one day joining British members there.

Slovenia is showing the way to the rest of former Yugoslavia. Hungary is moving forward fast. And Bulgaria and Romania have opened negotiations to join the EU too.

Commissioner Patten has started negotiations with the former Yugoslav Republic of Macedonia on an EU Stabilisation and Association agreement.

Albania faced disaster a few years ago. Now reforms are making a real difference.

Above all, Croatia has voted decisively for the European path – its prospects have been transformed.

With generous international help Bosnia and Herzegovina has emerged swiftly from the calamity of the war. Now it needs to sort out its internal difficulties, or it will be left behind.

One government is not represented here. No gathering to promote cooperation and stability needs a government promoting division and instability.

The cost of President Milosevic has been appalling. All of us in this room today are worse off because of his reckless selfishness.

Over ten years Serbia’s economy has contracted by 60%. By contrast, Slovenia’s income per head has risen by more than half in real terms.

The cost to the Serbian people of Milosevic’s poor economic management has been $110 billion – the difference between actual national income and the higher levels they could have enjoyed if they too had embraced democratic and economic reform.

Milosevic has tried to fool the Serbian people into thinking that he is the patriotic option. The true Serb patriot has to choose between the lifting of sanctions, membership of the IFIs, the European high-road; or rule by a handful of suspected war criminals.

The Serb people will choose the European high road. The only question is how long it will take them to do so.

In the meantime we must do what we can to engage the Serbian population and isolate the Milosevic regime.

We are supporting Montenegro actively.

We are rebuilding Kosovo. This is not an easy task, given the past decade of repression and 50 years of tension and suspicion before that.

UNMIK and KFOR have made important progress. But extremism in Kosovo is as unacceptable as extremism in Belgrade, in both cases involving fanatics who often are little else than criminals.

As Prime Minister Blair said in Lisbon, people want to make money, not war. We in the wealthier part of Europe have to help make this happen.

The UK is playing its full part, both bilaterally through the £100 million we have earmarked for the region over the next three years, and through our contributions to the European Commission, World Bank and other institutions. I have tabled a paper describing our assistance programme in detail.

This is a team effort:

• Countries and institutions providing assistance have to make sure that what they do makes sense. Assistance has to be timely, targeted on real needs and well coordinated. Spending money without getting lots of other things right is not the way forward.

• We need to free up trade and investment. The UK wants EU markets to be opened up to imports from the region, even in sectors which might cause us problems. This is potentially a far greater a contribution to the region than official assistance packages, although they too are important.

• Countries looking for assistance in turn have to do ensure that this investment brings lasting benefit. This means reform programmes promoting accountability and honest government. Without this, ‘official’ assistance will not be reinforced by private investment – and that is where the real resources are.

Finally, let’s not forget the wider transformation of the world economy which information technology is bringing.

The region has hundreds of thousands of well educated people. It has the chance to leapfrog to the very latest systems, including wireless technologies in which Europe leads the world.

But this needs open competition and transparency across the region, tackling tough vested interests and state monopolies. This is not easy in the EU or anywhere else. But it has to happen.

Roads and bridges matter. But so do the information superhighways of the next century.

This is the key message from Lisbon. The European Union itself has a massive task in adapting to this completely new situation. So does this region.