The fall of Slobodan Milosevic does not cure the political woes of the Balkans; it raises their urgency.

Yugoslavia has disintegrated, but the disintegration is incomplete. Vojislav Kostunica, the new president, won his mandate solely from support in Serbia. Montenegro, Serbia’s junior partner in the Yugoslav federation, mostly boycotted the poll while Albanians in the disputed province of Kosovo ignored the elections.

A host of problems remain unresolved, such as the relationship between Serbia and Montenegro and the status of Kosovo. It may be tempting to solve the puzzle by drawing new borders or establishing new entities but such a traditional solution would perpetuate the problems. A new approach is needed.

The European Union should use the prospect of European integration to promote regional integration. The EU could act as a magnet to bring the region closer together by bringing the Balkans closer to Europe. This idea has great appeal to people in the region, but only the EU can make it happen. After Nato intervention in Kosovo, European leaders made this approach the cornerstone of their vision for the Balkans. It was enshrined in the Stability Pact signed at the Sarajevo Summit in July last year. But the Stability Pact is merely a shell; it needs content. The time to do it is at the Zagreb Conference tomorrow called by France as the current EU president.

The European Union should now propose a three-point plan for the Balkans. First, it should help create a customs union with preferential access to the EU within one year. The existing EU-Turkey customs union should be used as a model. Once all these countries have reached such an agreement with the EU there would automatically be free trade throughout the entire region. This will take some time. But from the start, the EU should give a signal by unilaterally opening its border to imports from the region. This cannot endanger any EU interests because the countries in question account for less than 1 per cent of the EU market.

Second, a regional value added tax for the Balkans should be established within two years to replace the lost customs revenues from the customs union. Differences in indirect taxes such as VAT present another way in which borders become obstacles to trade. They should be unified throughout the region. The VAT rate might be increased slightly on certain products if expenditure restraint is not sufficient to offset revenue losses from the customs union.

Third, the EU should provide temporary budgetary support on a declining scale tor three years, subject to EU supervision over budgetary expenditures. This would help bridge the time needed to begin collecting the regional VAT.

The area covered by the plan would include Bulgaria, Croatia and Albania as well as Serbia, Bosnia, Macedonia, Montenegro and Kosovo. The participation of Romania and Moldova is optional. Bulgaria and Croatia could be persuaded to participate provided it would not interfere with their candidacy for EU membership. Depending on the country, there could be more or less budgetary support.

Compared with the cost of military intervention and peacekeeping, the’ amounts involved in budgetary support are ridiculously low. I estimate that €750m ($632m) m the first year. €500m in the second and €250m in the third would be enough. These figures are well within range of pledges already made by the EU for the Stability Pact. In addition, they could be easily accommodated within the parameters of the Berlin Accord on the EU budget for 2000-2005 if the member states agree to a reallocation of unspent funds. Budgetary support in the context of a customs union would be a more effective way to disburse EU funds than the conventional methods.

This three-point program would lay the ground for economic resurgence. It would remove the two main sources of corruption and inefficiency: the customs service and the misuse of public funds in general. It would create a trade area big enough to generate local and foreign investment. The D-Mark, already widely used in the region, functions as the de facto common currency. Any ban on its use should be lifted to make borders irrelevant for trade and investment.

Of course, it is not a panacea for Serbia, or elsewhere. In Serbia, the new government has inherited a bankrupt country whose institutions have been ruined. The population is asking about crimes committed by the Milosevic regime against Serbs. It must begin to come to terms with the crimes committed against others in Croatia, Bosnia and Kosovo. Once that process is under way, many problems that now seem so intractable will be resolved more easily.

Mr Kostunica’s election as president of Yugoslavia is an incomplete revolution; many of the old guard are still in place. Mr Milosevic was overthrown in the hope of ending Serbia’s isolation. Europe must now fulfill its promise or an historic opportunity will be lost.