October 22, 2004 - Five years since the NATO intervention in Kosovo and four years since the democratic revolution in Serbia, the region that comprises Serbia, Montenegro, and Kosovo is still in political limbo. The international community has been ineffective in pushing for final settlements to resolve the separate, but interconnected, problems of Kosovo and Serbia and Montenegro. Final status agreements concerning these issues need to be achieved in concert within the next 16 months. Otherwise, new sources of regional destabilization are sure to arise.

The last window of opportunity for a negotiated solution to the status of Serbia and Montenegro will close in February 2006, when the three-year period provided for in the Constitutional Charter of Serbia and Montenegro expires, allowing either of the republics that make up the union to unilaterally withdraw from it. Montenegrin officials have already asserted their intention to withdraw and achieve independence.

The initiative for the resolution of the Kosovo issue should be transferred from the United Nations and the Contact Group to the European Union, supported by the United States. Diplomacy oriented toward the maintenance of sub-national, provincial borders has failed to produce tangible results in the region. The co-existence of Serbia, Montenegro, and Kosovo within a common, sovereign, political structure now seems more improbable than ever, in particular due to the deeply antagonistic relationships among the political elites of the three entities. A regional, functional approach to their future, though wrenchingly painful, may thus prove more successful than the remaining, even more undesirable alternatives.

A proposal in this direction would be a negotiated recognition of statehood and independence for the three entities, to be accompanied by the establishment of an economic, monetary, and customs union among them: a Benelux in the Balkans. This union should immediately start negotiations with the European Union for the entry of the three states, with the prospect of full membership for all three by 2010 or 2012.

In the current relationship between the republics of Serbia and Montenegro, the temporary "cold peace" cannot lead to state-building. Even if a slim majority of the Montenegrin population supports the continuation of the state union with Serbia in a future referendum, common political institutions will not be effective due to the expected failure of any political articulation of common interests. The two republics are using different currencies, the euro in Montenegro and the dinar in Serbia, and the transformation of economic disparities into political friction will continuously threaten the functioning of the common institutions. Instead of being open to the world, such a state union will use its energies to create and then settle its own disputes. The devolution of power from Czechoslovakia to the Czech Republic and Slovakia should be the model for the process of achieving a "velvet separation" of Serbia and Montenegro.

However, the crux of the problem is the lack of a negotiated solution in Kosovo. EU diplomacy should turn away from the U.N.'s "standards before status" policy toward a "standards through status" strategy. Instead of an open-ended negotiation process concerning the future of the province, the international community should make clear that final-status talks must conclude by the end of 2005. Without a decision on Kosovo's status and the creation of a charter of rights for its population, which includes the protection of private property in all its forms, the economy of the entity cannot take off and foreign investors will continue to avoid the region. However, the rule of law cannot be built into a constitutional vacuum. A negotiated solution should resolve all fundamental issues surrounding the status of the Serb minority and recognize Kosovo's independence.

Many Balkan observers have recommended that Kosovar Serbs be allowed to determine their own future through a referendum. However, the Serb region in the northern part of Kosovo should not be given the right to secede from the province, a move that would lead to the annexation of the area by Serbia. Such a step would nurture Albanian nationalism and might lead to a conflict that would make the coexistence of Serbia, Montenegro, and Kosovo in a Benelux impossible. The most likely result would be the unification of the rest of Kosovo with Albania and the revival of Albanian irredentism. In addition, the partition of Kosovo would almost immediately bring a call for the secession of Republika Srpska from Bosnia and Herzegovina, and eventually a similar call from the country's Croat entity.

Instead, Serb refugees should be encouraged to return to their homes in Kosovo under international protection, and compensation should be paid to them for the losses they have suffered as a result of the inter-ethnic violence of recent years. Eventually, a fund financed by international donors could be established for this purpose. Kosovo's constitution should recognize the right of the Serb community to self-administration – the Belgian model should be thoroughly studied in this respect – and the community's right to appoint Kosovo's vice-president or vice-premier. The link between Kosovo's Serb minority and Serbia should be acknowledged, and this minority should have the right to dual citizenship.

To prevent friction with neighboring countries, the new independent state of Kosovo should be demilitarized, at least for a period to be agreed upon that will coincide with the continuing presence of a multinational security force on its territory, transformed from the present NATO-led force to an EU-led force. The unification of Kosovo with any other state would be prohibited, except, obviously, within the process of European integration. Moreover, the international community should make crystal-clear that no revision of the Dayton Peace Agreement for Bosnia and Herzegovina will be envisaged.

If the recognition of the three independent states of Serbia, Montenegro, and Kosovo appeared to be an effective means of stabilizing authority on their respective territories, political fragmentation would also need to be managed. The movement of persons, goods, services, and capital would be free in the economic, monetary, and customs union from the beginning, and the currencies of the three states would have a fixed exchange rate against the euro. Eventually, a common central bank could regulate monetary circulation. Serbia, Montenegro, and Kosovo would negotiate their entry into the European Union, NATO, and the World Trade Organization (WTO) simultaneously, and they would, in principle, become members of every organization at the same time, unless any of these states grossly violated the agreements that had led to the recognition of their independence.

Such a political project is realistic because many elements of regional integration are in place. For instance, the Constitutional Charter of Serbia and Montenegro already provides for the establishment of a common market between the union's two republics. Moreover, both Montenegro and Kosovo use the euro as their official currencies. The main questions are whether Serbia and Kosovo would accept the proposed political compromise and what means would be available to the international community to persuade them to do so. The "carrot" would be the visible prospect of the parties' integration into European institutions. Moreover, the Kosovars would gain their independence, and Serbia would ensure a fully protected status for its minority in Kosovo. In addition, Serbia would open the door to desperately needed foreign investment to rebuild an economic infrastructure devastated by Milosevic's corruption and NATO bombing.

However, in the complex world of the Balkans, nationalists have proved that they can adroitly exploit feelings and fears. The "stick" of international diplomacy could be the prospective costs for the entity that bore the primary responsibility for the failure of the effort. If Kosovar Albanians were responsive to the proposals and Serbia refused to cooperate, the EU could unilaterally recognize the independence of Kosovo and negotiate with Montenegro and Kosovo the terms of their EU candidacies and future accession. If Serbia were responsive and the Kosovar Albanians refused to agree to a constitutional compromise, the EU could follow the "Cyprus model," that is, negotiate with Montenegro and Serbia the accession of the comprehensive territory of the economic, monetary, and customs union, designate a provisional EU status for Kosovo, and await the outcome of a bilateral process between Serbia and Kosovo in an undefined timeframe, effectively marginalizing Kosovar Albanians from full EU integration.

Despite the current appearance of normality on the surface in Serbia, Montenegro, and Kosovo, poverty and a political vacuum may nurture new levels of ethno-religious conflict, as the massive violence that erupted in Kosovo in March 2004, leaving 19 people dead and over 900 injured, clearly indicated. If the present stalemate persists in the region, the international community may soon face a replication of the problem of Northern Ireland.

The international community does not have the power or the will to impose a solution that the parties will reject. However, the political and financial capital that can be devoted to Kosovo is scarce. A total of $2.3 billion was pledged to Kosovo by the international community for the period from 1999 to 2003, but it is unlikely that significant international funding will be provided for the indefinite future. In addition, the war on terror has created more immediate stability concerns. The proposed functional approach to Serbia, Montenegro, and Kosovo would make clear to the political leaders of the region that they have a clear-cut choice: either join the process of EU integration and development, or be left behind, with lasting attendant hardships for their citizens.