Patriarch Diplomacy

It was probably a bigger step than many thought when the Patriarch of the Orthodox Church of Russia visted Latvia during the last few days.

It wasn’t really like one church person visiting some other church persons.

He come on an official invitation by the President and the Prime Minister of Latvia. And on Riga airport was parked his very large official Russian government aircraft. His visit was treated as an official state visit.

According to the news media, it was the first visit of a Patriarch of Russia to Latvia in 900 years.

Who was there, and under which circumstances, in the 12th century was not made clear. If correct, then this was before the founding of either Riga or Moscow. An orthodox priest lost in the pagan woods on the Eastern shores of the Baltic Sea…

It’s probably lost in the fog of history.

Anyhow, Alexey II has of course been to Riga before. He is in fact born in Tallinn in Estonia, and while bishop there his responsibility included the Orthodox in Latvia as well. But that was before he ascended to the heights of Moscow.

Nevertheless, he said that he hoped his visit could “set a good start for this relationship” between Latvia and Russia, and that the two countries would increase their cooperation in different fields.

It’s not ping-pong diplomacy between Latvia and Russia.

It’s patriarch diplomacy.

Challenges of Success

There is little doubt that Latvia at the moment is doing very well.

But with elections coming up in October, there are discussions on where the country is heading in the future.

Prime Minister Aigars Kalvitis is at the moment heading a minority government, but will remain in office until the elections.

What happens thereafter is anyone’s guess. But fears that money-rich groups around the interests running the profitable oil transit in Ventspils were to launch themselves on the political scene seems to be receding. Their man is too bogged down in legal problems due to his past.

The probability is then high that we will see continued centre-right stability in terms of the policies of Latvia. And that should be good news to everyone concerned.

But Prime Minister Kalvitis is setting his sights on the future.

With costs rising as the country moves on, he speaks about the need to develop the scientific and educational base of the country, and sees this as key to safeguarding and improving the competitiveness of the country in the coming years.

There is of course a certain disappointment here over the attitude taken by certain of the old EU members against the new ones. While the markets of the new countries are completely open to the products of the older, the markets of the older are not completely open to the services of the new.

There is an imbalance that is seen as unfair in these arrangements. And the new EU service directive is of course the concrete expression of this.

But Latvia is also looking towards its Eastern opportunities. Riga has always been a city at the centre of the trading relationship between the East and the West.

Now Riga is coming back as an important service center for important parts of the CIS markets. There are developing links with the countries of Central Asia, and there is talk of developing a new Silk Road using the rail transport possibilities between China and the Baltic Sea, thus cutting transport times from East Asia to Western Europe substantially.

And when one listens to the politicians of Latvia, there is certainly no intention to abandon the successful flat tax model. Today, the income tax in Latvia is 23 %, which is even lower than the 25 % in Estonia and 24 % in Lithuania.

Some politicians are even taking about taking it down further. It is important to attract back all those Latvians who during the last two years have gone abroad to work in other countries, very many of them heading for Ireland. Latvia will benefit from their talent as they are coming back.

So, things are not that bad.

That the economy shows signs of overheating is obvious. The Riga property market looks crazy. The next government will have to firm up the macroeconomic policies by increasing the budget surplus.

But these are the problems of success.

Once upon a time Riga airport was a hub of the Soviet Air Force. Now it’s a key destination for Ryanair.

Things have changed.

Across the Baltic Sea

An early flight this morning – but only to Riga in Latvia across the Baltic.

I will be there today and tomorrow, primarily but not only in connection with a conference there by East Capital.

But it’s also a good way to keep up with what is happening in the country as it is heading to its elections to the Seima – parliament – just after the Swedish elections this autumn.

The economy is booming. Last year Latvia registred a growth of slightly over 10 %. This year will be slightly less, but all estimates speak about continued high growth in the years ahead.

I will be meeting Scandinavian businessmen to listen to their assessments. And I hope to be able to see at the least some Latvian ones as well.

Relations with Russia could obviously be better – although they are not necessarily bad. The border treaty has not been ratified, as is the case with Estonia, although in practice this doesn’t really mean anything.

I notice that the Patriarch of Russia Alexey II has been in Riga the last few days and performed services at the main Orthodox church, among other things. Whether he has also been seeing the congregation of Old Believers – those refusing the lithurgial reforms at the time of Peter the Great – having their own Orthodox churches in Riga would be interesting to know.

Since the start of the process of naturalisation, 110 000 Russian nationals have applied for and been given Latvian citizinship. Much of the business of Latvia is dominated by Russian nationals – and they seem to be enjoying to be part of the European Union.

And for all the complaints occasionally coming out of some circles in Moscow, it is clear that a Russian living in Latvia has far better protection for his och her human rights than a Russian living in Russia. Accordingly, they want to stay in Latvia and see their future there.

Later this year, Riga will be hosting the NATO summit. I guess it will be the largest international gathering in northern Europe for at the least a decade. The only meetings of similar size I can remember where the Helsinki Summits.

The decision to have the summit in Riga can be seen as a tribute not only in general to the country but particularly to President Vaira Vike-Freiberga. She has established herself as an impressive and determined political profile, not seldom mentioned in connection with speculations about the next Secretaty-General of the UN, although I would consider that unlikely.

But the NATO Summit will be a great – and important – even for Riga.

Apart from having a promising future, Riga is a lovely city with a rich history.

The Defining Issue

I don’t think it’s generally understood here in Europe how big the immigration issue is in the US at the moment.

As I left the US after a week in New York, Washington and San Fransisco, the Senate had just taken its decision on what President Bush calls a comprehensive immigration reform.

The House has already decided on a more limited policy, focusing on border and enforcement, but offering no path to citizenship for those that have been in the country for a long time.

And now the task is to get the Senate and the House to agree to something that can then be voted on – preferably before the November elections.

Fred Barnes in the Weekly Standard is very clear on the importance of the issue:

”Failure to deliver on immigration reform, the single biggest domestic issue of the decade, would mark the end of the Bush presidency as an effective political force. Bush would become the lamest of lame ducks. His final two years in the White House would be painful.”

But the other way around also applies.

If he can deliver on this, he will be seen as having achieved a major break-through on a very major issue, and also done it in a way that is likely to capture the centre ground of the electorate on the issue.

That could be very important.

But it will not be easy. He will have to face down some very hard-nosed and semi-xenophobic voices. And there will be elements on the Republican party that will have difficulties.

So far he seems committed to stay the course on the issue.

Whether it is the ”defining issue of the decade” or not – the defining issue at the moment it certainly is.

Success in Colombia

Good news coming out of Latin America is rare these days.

The politics of the continent seems to be going through another one of its populist – and ultimately destructive – phases.

We have unfortunately seen it before.

One of the few exceptions might well be Colombia. I’m noting it because there is presidential elections there today.

Alvaro Uribe seems likely to win. And he deserves to win.

I remember years ago when Bogota was seen as so crime-infested and dangereous that one could hardly enter the terminal in the airport from flights transferring through there.

That’s all gone. Today, charming Bogota is one of the safest and cleanest cities of Latin America.

There is little doubt that President Uribe has done more than any other leader to reduce Colombia’s once-spiraling violence and the dangerous spread of its biggest rebel group, the leftists and drug-smuggling Revolutionary Armed Forces of Colombia, or FARC.

Murders have also dropped to just above 18 000 last year from nearly 29 000 in 2002, when Uribe was elected, and kidnappings fell to 800 from nearly 3 000 earlier.

This is all associated with the efforts done to combat the drug trade that previously risked totally destroying the country. A program of spraying cocoa plantations from the air that was once rather controversial has evidently started to be succesful.

Of note is also that Colombia’s economy grew 4 percent or better the last three years. Foreign investments has tripled after President Uribe took office.

We’ll see what happens, but to me it’s obvious that he deserves to be re-elected.

Center of Excellence

It took some time to get back to Sweden from San Fransisco. The flight from there to London is ten hours.

Back there I had the opportunity of spending some hours at Stanford University.

It is one of the true centers of excellence in our present world.

It has an impressive track record in many respects. In recent years it has achieved a certain fame as the birthplace of what is much of todays Silicon Valley and the role it has played in the US and global economy.

Faculty and alumni of Stanford have helped to create companies like Cisco, eBay, Google, Hewlett-Packard, Silicon Graphics, Sun and Yahoo!. Most of them are headquartered in Silicon Valley.

And in all probability there are now small start-up companies on or nearby the campus which we will hear a lot about in a couple of years. The innovative spirit is very clearly there.

But I spent my few hours there primarily listening to Professor Irving Weissman telling about the state of stem cell research and the possibilities of regenerative medicine.

It’s a controversial subject. Professor Weissman and his colleauges at the Stanford Center for Stem Cell Biology are at the very forefront of the international efforts in this area. But ethnic and religious concern have led to serious restrictions on what they can and what they can’t do.

The potential, as professor Weismann described it, is obviously enormous, even if it will take time for the results to start to be applied widely around the world. But there are obviously the possibility of dealing with some of the most difficult diseases threathening us today.

Asked why he did not move to another country with his research in order to avoid the US restrictions, he answered that he was already in another country, namely California. State policy there is clearly in favour of stem cell research. But otherwise he mentioned other scientists moving to Britain, Singapore or China in order to continue their research.

Of the top 20 universities in the world 17 are in the United States, and Stanford is clearly one of them.

Even the shortest visit gives a strong impression of how we in Europe have often underfunded and underused our universities. We see them purely as edicational institutions, which they of course are, but not as the hubs of innovation, research and change in society.

Stanford University is a 2,9 billion dollar enterprise.That’s a lot of money.

But there is little doubt that the benefits of what’s being achieved there is many times that sum.

We ought to learn from that.

Friends in Need

By now, UK Prime Minister Tony Blair should have arrived in Washington for discussions with President Bush. It’s a visit that has been arranged on rather short notice.

Bush will be interested in the personal impressions Blair got when he visited Baghdad and saw the new Iraqi government just a few days ago. But although the US media has been speculating that the two of them would announce some sort of troop withdrawal from Iraq this seems to me unlikely in the extreme.

On Iraq, their joint policy at the moment can be little more than hope that the government that is now at least partly in place in Baghdad will be able to exercise some sort of authority, and that this will make it possible to turn at the least a part of the insurgency around.

It’s a faint hope – but it’s what there is.

I suspect that the number one subject they will be discussing is Iran and what to do. And I strongly suspect that Blair will try to convince Bush that there has to be some sort of US direct involvement in some sort of talks with Teheran.

The letter written by President Ahmadinejad to President Bush is increasingly seen as an important signal. And that it is seen as important is obvious from the fact that it is the number one item on the webpage of the president of Iran.

The picture here – with Bush thinking on how to respond – is in fact taken from that webpage.

With the prospect of some sort of direct US involvement – which Teheran is very clearly seeking – it becomes more realistic to ask Iran for some sort of suspension of their enrichment activities. It might work – or it might not. But not trying does not seem to be too wise a policy.

Apart from Iran and Iraq, I would guess that Blair wants to get briefed on the discussions with Israeli Prime Minister Olmert the last few days, and that he wants to give support to the more concilatory parts of what the White House is trying to impress on the new Israel government.

He will undoubtedly stress the clear link between avoiding a deterioation in Palestine and everything else in the Middle East.

And then I would guess they will discuss how to handle the G8 Summit in St Petersburg in July. There was the EU-Russia summit in Sochi yesterday, and there will be the EU-US summit in Vienna in late June, which are also part of these preparations.

Blair stays in Washington also tomorrow. He will then deliver a speech to Georgetown University.

He will need some good publicity from the visit.

His approval ratings, according to the opinion polls, are below those of President Bush.

Intermediate Wisdom on Iran

Years back, Commentary was one of the US magazines that I found most interesting and stimulating.

But that was then. Now it is often so fanatical in its mistrust against anything that has to do with the Muslim world that it becomes nearly unbearable.

So it was not without interest that I started to read the main article in the latest issue arguing that it might not be too wise to bomb Iran. At least not immediately.

Normally, many of the contributors to Commentary would be in favour of the immediate bombing of many places – and most certainly of Iran.

But Edward Luttwak argues along different lines.

It’s not that he rules out the use of military power if nothing else works. But he argues that we have got time, and that we need to look at the fundamental forces shaping Iranian society today.

I would recommend his piece to anyone seriously interested in the issue.

Edward Luttwak can certainly often be described as a hardliner in the US debate. He wouldn’t object to the description. But he is also a learned and thoughtful person.

Well worth reading.

Same in California

Five hours flight time from Washington turned into six as we had to swing far to the South over Texas in order to avoid thunderstorms over the central mid-West.

But after hours of flying over the Western deserts the plane touched down by San Fransisco Bay.

The issue here – even more than in Washington – seems to be immigration.

Tomorrow President Vincente Fox arrives in California in order to, among other things, address the state legislature in Sacramento.

And Governor Arnold Schwarzenegger – a legal immigrant who is facing his own election later this year – must strike a balance between the very different views on this issue found in this state by the Pacific.

The issue is truly big. In Wall Street Journal today, New York mayor Bloomberg goes so far as to describe it as the issue that will define American politics of this decade:

”In every decade there is a critical domestic issue that shapes our political life for decades to come. In the 1960s, it was civil rights; in the 1970s, the Watergate crisis; in the 1980s, crime and drugs; and in the 1990s, welfare dependency. Today, it is immigration.”

That might be to go too far – but it certainly shows the magnitude of the issue in the US political debate at the moment.

And in The San Fransisco Chronicle the issue is clearly the dominent one.

Meanwhile back in Washington, the Senate will try to get its act together on the issue before Congress takes a its Memorial day recess from Friday.

Although it is likely that the Senate will follow President Bush’s rather sensible line, emotions are running high. A report by the conservative think-thank Heritage Foundation on Monday, saying that over 100 million immigrants would be let in over coming years under the proposed bill, lead to immediate changes.

But Heritage isn’t satisfied, and continues with its warnings:

”As a result of this change, our estimate of the number of legal immigrants who would enter the country or would gain legal status under S. 2611 falls from 103 million to around 66 million over the next 20 years.”

Business is firmly on the side of a more liberal policy, with the US Chamber of Commerce leading the charge on their side.

But on Thursday much attention will be on Arnold Schwarzenegger and Vincente Fox.

The Austrian and the Mexican battling for the soul of California.

Welcome Montenegro!

The results of the referendum on Montenegro has now been recognized by all.

Since more than 55 % voted for independence, the issue is settled.

The result has been fully accepted by the government of Serbia. That’s of critical importance.

There are a large number of practical problems and related issues that have to be settled in the functional separation we are now heading for.

Will Montenegrians in Serbia become foreigners? Will Serb citizens in Montenegro? Who pays the pensions? Will the border be open for trade and travel like in the past? What happens with what’s left of the navy and its installations in the Bay of Kotor and in Bar? How will the foreign debt – as well as the joint assets – be divided?

It requires goodwill and generosity in Belgrade as well as Podgorica to reach agreement on these and others issues. Possible also the mediation of the European Union.

But soon we will see Montenegro entering the United Nations as an independent state.

It’s a country with potential – but also with potential problems.

It needs to handle its national diversity with care. Montenegrians are in a minority in Montenegro.

It needs to clearly break with its recent past of large-scale smuggling and criminality. Many still remember the minor navy of high-speed smuggling vessels operated under semi-official Podgorica protection.

There is no reason to think that all of this can’t be done. But Europe will be watching.

Montenegro has always been Europe. If it handles things wisely in its immediate period of independence, the door to membership of the European Union will also open up.

But it will not come easily. And not fast either.

The key is in Podgorica.

Israel in the White House

 As I write I am watching on TV Prime Minister Olmert and President Bush meeting the press in the White House a block from here.

And as you can see from the picture – taken an hour ago – it is a truly nice day in Washington.

But whether the talks in the White House so far have brought more of stability in the Middle East is far from clear.

Prime Minister Olmert is saying that he is ready and willing to meet with President Mahnmoud Abas of Palestine to see if an agreement can be reached on key issues. One gets the impression that President Bush has been pressing him into this – it did not come in his initial statement.

His stress is on the unilateral dismantling of some settlements on the West Bank that he wants to undertake. But he excludes ”major centers of Jewish population” from this, leaving it unclear what he means. I would expect there to be more detailed discussions on this in the coming hours and days.

But unilateral moves can never replace a negotiated settlement. President Bush made that clear.

And an important fact is that unilateral moves are likely to play into the hands of Hamas.

The fact that Israel refused a negotiated deal during the past few years, but withdrew unilaterally from first Southern Lebanon and then Gaza, was of course undercutting the credibility of those Palestine leader ready and willing to negotiate, while it strengthened those saying that resistance and armed actions will force the Israelis on the defensive anyhow.

One would hope that one does not repeat that mistake.

And that pressure from the White House will moderate the unilateralist and dangereous tendencies in the policies of Israel.

This written before I haste away to give a speech to the Council on Foreign Relations here on trends in the politics and policies of the European Union.

Not as dramatic. 

Neighbours Bound Together

The truly important political meeting here in the US today is of course the one between President Bush and Prime Minister Olmert of Israel. They will come together in the White House within just a few hours.

But another visitor arriving in the United States today also requires attention.

President Vincente Fox of Mexico arrives in Salt Lake City in Utah. And he continues with visits to Seattle in Washington state as well as Sacramento and Los Angeles in Californa until Friday.

He comes in the middle both of the heated immigration debate here – the Senate is expected to take its decision within the next few days – and the campaign in the race to succeed him as president of Mexico in the elections July 2nd.

In Salt Lake City he was meet by demonstrators warning against Aztlan. That’s an imaginary plan by Mexicans and others through undermine the Southwest of the United States through immigration, create the state of Aztlan and break loose from the United States.

But the true issues in the immigration debate are economic.

No less than 15 % of the workforce of Mexico works in the United States. That’s a very high number. By now, app 10 % of the population of Utah is Hispanic. And in a state like Washington 6 out of 10 farm workers are Mexicans. Los Angeles – with a Hispanic mayor – simply would not work without its Mexican and Hispanic inhabitants.

The strength of the US economy is partly founded on immigration. And President Fox will meet with business leaders throughout his trip.

He is likely to be vocal in his opposition to President Bush’s plan to deploy the National Guard along the borders – approved by the Senate yesterday. So are the tweo contenders in the presidential race in Mexico – centre-right candidate Felipe Calderon and leftist firebrand Lopez Obrador.

The outcome of that race is important for everyone. With its 100 million people Mexico is an economic powerhouse in the making. Within a decade President Fox believes it should have reached a level of development where few people would prefer to cross the border with the United States.

But it’s all dependent on the future of free trade. Mr Calderon is very much in fav our, while Mr Obrador might well pursue more populist and leftist policies, thus limiting the future possibilities of Mexico.

Neighbours are always dependent on each other.

The economic interdependence between the United States and Mexico through immigration is enormous.

And these days we see how the politics of the two nations, face with important elections later this year, interacts.

Washington Talks

A sunny and nice morning in Washington as another week gets starting.

The President is in Chicago and the Vice President in Southern California, but Israeli Prime Minister Olmert has arrived in town prior to his important White House meetings tomorrow.

It will be the first major meeting between the US and Israel since the elections in both Palestine and Israel, and Olmert will seek US support for his different thoughts on further unilateral withdrawals.

It’s also safe to expect discussions on the deterioating situation on the West Bank and Gaza. Finally, there is concern about the effects of the policy one has pursued, with the European Union trying to do as best as it can to set up some sort of support mechanism.

I will be here for a couple of days connected with a number of events, notablt the Sabanci Award tomorrow for essays on the future of Turkey. But I will also be attending discussions on Russia, on nuclear power, on energy security as well as giving a speech at the Council on Foreign Relations on where Europe is heading.

Over the weekend it seems as if Montenegro voted for independence, and that the process of formal separation from Serbia will now begin. One can only hope that it will be conducted in a good and generous spirit from both sides, since otherwise the risks of damage being done to both is rather considerable.

It’s a new European mini-state – app 650 000 inhabitants – that is born.

Although the turmoil on the financial markets are likely to dominate much of the week, there will also be every reason to watch the summit between Russia and the European Union in Sochi on Thursday as well as the informal meeting of foreign ministers in Klosterneuburg in Austria over the weekend.

By that time I hope to be back in Sweden again. But in between a couple of days here in Washington and coming home I will also have to go for two days to San Fransisco.

More about all of this later.

Open or Closed Nation?

A sunny morning in New York. But before resuming discussions on the future of Russia, it is imperative to try to get through the Sunday papers.

The New York Times on Sundays is one of the more solid pieces of information to be found on this globe. There, as elsewhere, it is obvious how immigration is now the big issue dividing Americans and dominating its politics. Not even Iraq or Iran reaches the same intensity in terms of the debate.

And this coming week the Senate will try to get its act together and decide on its position. The House already has – to the horror of many.

For those interested, the Washington Post has excellent coverage of the issue. And the New York Times a good editorial today.

There are 11 to 12 million illegal immigrants in the United States. For all practical purposes we are talking about Mexicans – mostly referred to as Hispanics. And increasingly they are all over the US.

There are two extremes in the debate – an amnesty for them all, paving the way for citizenship, or more or less immediate imprisonment and deportation for everyone.

President Bush is trying to create a middle ground. But he’s not having an easy time with the issue.

On the one hand he did important inroads into the Hispanic vote – increasingly important – in his latest elections. He is from Texas with its large Hispanic population and close ties to Mexico, and he speaks Spanish.

But on the other hand parts of the hard core of the Republican party is very militant in its deportation approach to the issue.

So he is on the one hand sending the National Guard to patrol the border with Mexico and on the other hand paving the way for a scheme under which some recent illegal immigrants would have to go back while those that have been here longer will be offered possibilities of staying.

Not an easy balancing act – but a decent attempt to secure a decent middle ground in a very divisive debate.

A debate very much like the one we now find in a number of European countries.

The pressure of the South is reshaping socities on both sides of the Atlantic.

Songs Showing A New Europe?

Not that it necessarily is a big thing here in New York – and whatever you think of it otherwise – the Eurovision song contest is a big event for many people throughout Europe!

In these days of discussions about ”the borders of Europe” and the need to concentrate on the old ”core Europe” it is interesting to note that the Eurovision contest is truly breaking out and demonstrating the existence of a much broader Europe.

Just look at the melodies and countries winning!

Finland with a very clear win. Why monsters is the mood of the day is beyond me, but that’s a separate issue. Win they certainly did.

Then came Russia followed by Bosnia Herzegovina. After that we find Romania, Sweden and Lithuania. And following them was Ukraine and Armenia.

It seems as if European cultural and creative vitality is to be found in the North, in the East and in the Southeast.

This is in fact not unlike what we are seeing in the economic growth figures for different regions of Europe.

It could of course be pure coincidence.

But it could also be the sign of something deeper and more significant.

Time will tell.

Are We All Absorbed?

I have just left Brussels, stopping over at Heathrow airport before proceeding on the last flight of the day to New York.

But – all in all – it was a very good conference in Brussels yesterday and today.

A discussion before lunch today on the so called European social model was noteworthy for hardly mentioning unemployment, instead focusing almost exclusively on ”employment protection”, but other panels were broader in their approach.

The hard thruth is that if you fail in employment creation, then employment protection becomes just a defensive game that is bound to increase social tensions in society.

It’s when you are succesful with employment creation that there can also be meaningful employment protection.

But the afternoon’s discussion was about enlargement, asking the queastion whether the magic can work again.

Magic it certainly was. Javier Solana underlined it, and I tried to reinforce his words. The enlargement with 100 million people and 10 nations from Estonia to Bulgaria can well be described as Europe’s finest hour in modern times.

And we are all benefiting from it. I argued that the European economy is become globally more competitive as a result of enlargement. No one among the large gathering in the Charlemagne building seemed to disagree.

There are those trying to slow down things. European Voice reports in its issue out today about some proposals prior to the informal gathering of EU foreign ministers next week.

It all centers on the concept of ”absorption capacity”.

I’m not certain what this means. Is Sweden ”absorbed” by the European Union? Is France ”absorbed” in the same way? The concept is a rather strange one – I don’t think we really want to be ”absorbed”.

Key must be what the addition of new countries adds to the Unions capabilities or powers – or, possible, subtracts from them. That’s the truly relevant criteria.

France or Sweden might not be ”absorbed”, by the Union – not to mention Britain – but they have all certainly added to the Union in a number of different ways. Europe is stronger – more or less – with them as members.

There is, in my opinion, very little reason to doubt that future enlargement would change the fundamental pattern of adding to the capabilities and powers of the Union of previous enlargement. There is every reason to believe the contrary.

This is the real debate we need – not one that centers around the somewhat strange concept of ”absorption capacity”.

Economic Discussions in Brussels

Very early morning in order to get to Brussels for a number of things, but notably for the big Brussels Economic Forum.

My prime task is to chair its discussions on enlargement tomorrow afternoon, but I did attend also some of the sessions today. It was worth the time.

Mario Monti, who escaped being recruited to the new Italian government, was as usual highly critical of some of the core European countries in his remarks.

He dealt in particular with the relationship between the single market and the single currency, and argued that while those in the single currency need more of single market than the others, it now looked as if it is developing in the opposite direction.

It’s in reality the non-Euro countries that are better at implementing the single market legislation than are those of the Euro area. While there was previously talk of a single market in search of a currency, there is now the risk that we will see a single currency in search of a single market.

And this will of course feed rather well into the discussions at my session tomorrow. i will argue that the dynamism of the European economy today is coming from the new rather than from the old members, and that we have every reason to proceed with enlargement.

Much of the emphasis of the discussions were indeed on the importance of the single market and the openness to competition.

The head of McKinsey made clear that there is nothing as effective as the white heat of competition in driving innovation and growth in productivity.

Indeed, this is exactly what their recent study on Sweden illustrate.

There is a lesson for all of Europa in that.

Montenegro Maneuverings

Yesterday evening was the big TV duel in Montenegro prior to the referendum on independence on Sunday.

It was Milo Djukanovic versus Predrag Bulatovic. They have both been around for many years.

Opinion polls indicate a lead for the pro-independence supporters versus the pro-union ones, but whether it will be enough to secure the necessary 55% is unclear.

Although the election campaign is monitored by both the OSCE and the Council of Europe, it is obvious that all the tricks of the trade – and in Montenegro there are many – are employed.

A large number of Montenegrians live in Serbia and in particular in Belgrade, but they have to go physically to Montenegro in order to vote.

Well, suddenly Montenegro Airlines announced that it has to substantially cut down on flights from Belgrade, claiming that their aircrafts were needed elsewhere. It wasn’t too far fetched to see this as a move to limit the number of people coming from Belgrade to Montenegro to vote.

But soon after the Montenegro Airlines announcement, there was one from the JAT Airline in Belgrade announcing a sudden increase in flights to Podgorica during the coming days.

In rough terms, you will see the North of the country going for continued union with Serbia, and the South and the coast going for independence. But there will be exceptions to this rule.

On the coast, the city of Hercog Novi on the border with Croatia is likely to vote for continued union with Serbia. After the wars, its population has a very high percentage of refugees, not the least from Bosnia.

And in the north, it’s likely that Bijelo Polje and Rozaje will go for independence. Here, a substantial part of the population are Muslims calling themselves Bosnians. The region of Sandjak – Muslim rather than Orthodox – straddles the border between Serbia and Montenegro.

What happens in this region needs watching. There is a sudden conflict in its capital Novi Pazar, which is on the Serb side. Suddenly, the man I also associated with a more radical nationalist position, always closely linked with the more Muslim parts of the politics of Bosnia, has come out strongly in favour of a continued union between Serbia and Montenegro.

In the Balkans things are seldom as simple as they look.

The pro-independence voices in Montenegro are dressing many of their arguments in European terms. For many of them there is no doubt that this is sincerely felt.

But facts are partly different. It’s not unlikely that there are shady Russian interests also supporting the pro-independence camp. The by far largest enterprise of the country – the aluminum works by Podgorica – has just been taken over by a Russian group of somewhat debatable reputation, and other Russian business interests are noving in, not the least on the property market.

Whatever the outcome of the referendum, it has to be respected.

But days after Sunday will not be easy – come whatever.

Balkan Reform Signals

There is still uncertainty on whether Bulgaria and Romania will be able to join the European Union by the start of next year or whether they will be given another year to get their respective houses more in order.

That’s the message from the European Commission yesterday.

Bulgaria got six different issues that require ”urgent attention”, and Romania got four of the same level of seriousness.

And by October they must demonstrate dignificant success – otherwise the Commission will recommend that their membership is delayed until 2008.

I think it is good that the Commission is taking a fairly strict approach to this. One should not be able to get into the Union by cutting too many corners. The rules of the game have to be observed.

Add to that the fact that harsh conditions of this sort is actually a way of helping these countries in their reform process.

I talked recently with a very senior politician from Bulgaria who clearly said that this approach was helpful in driving the necessary changes and reforms. If Brussels where to turn a blind eye to the obvious problems in the judiciary and elsewhere, it is dead certain that local opponents of reform will do the same. The result would be bad for everyone concerned.

Although there are those that oppose further enlargement, and see escalating demands on the applicant countries as a way of keeping them out,I do believe that strict observance of the criteria is more likely to pave the way also for future new members.

The ”red cards” to Sofia and Bucharest are also important in sending signals to Zagreb and Ankara, as well as – further down the line – Skopje, Belgrade and Sarajevo.

But this signal is only effective as an encouragment to reform if it is the same time made very clear that the door to membership will be open.

New Openings with Iran?

There is little doubt that the Iranian nuclear challenge represents the perhaps most difficult issue on the global agenda today.

So far, we are on a glidepath to confrontation, as I have been writing about before. Only the somewhat wider awareness of the danger this represents has slowed down the speed of that glide somewhat.

The EU foreign ministers discussed a renewed possible package to be offered to Iran, and in Friday a meeting in London – subsequently postponed to early next week – will discuss the possibilities of proceeding with different measures after the negative IAEA report to the UN Security Council.

There are increasing pressures for the United States to engage directly with Iran on the issue, but this is unlikely to happen, aat the least in direct form.

It is far more likely that things are moving in the direction now advocated by Henry Kissinger when he is trying to analyze the situation. In effect, he proposes extending the present EU3 formula for discussion with a formula similar to the one used in the six-party talks with North Korea.

That would de facto see the United States sitting down on the negotiating table with Iran – although in a broader framework.

Whether that will move the issue forward or not is another matter. It has so far not brought success with North Korea. And there are no signs – at the least as far as I’m aware – of either Teheran being prepared to give up on what it considers its right to enrich uranium or the US being prepared to accept some version of enrichment in Iran.

And that’s the core of the dispute at the moment.

But the fact that the focus at the present is on the possibility of different diplomatic moves – and even the possibility of talks with Iran involving the US – is important in itself.

The letter from President Ahmadinejad to President Bush should, in spite of its demagoguery, be interpreted in the same way. You don’t write letter to the Great Satan is you are not prepated to engage with him in some sort of way.

We’ll see what happens on Friday and thereafter.

In the meantime one can do far worse than reading Henry Kissingers view on the issue.