Revival hopes are dashed by Milosevic

He lost the war, surrendered Kosovo and lives the life of an international pariah, but almost one year after Nato's bombing blitz began there is little doubt who remains the key political figure in the Balkans. Despite continued diplomatic and economic isolation, President Slobodan Milosevic still pulls many of the strings in the region.

Even his adversaries admit it. Returning from a visit to the region, Chris Patten, European Commissioner for Foreign Affairs, was in realistic mood as he gave his impressions of five days of travel through south-eastern Europe. One of the things that had struck him most was, he said, "the extent to which Milosevic is a malign influence from one end of the region to the other".

That fact is seen most starkly in Kosovo where Serbia's abilities to stoke ethnic tension in the divided northern city of Mitrovica became apparent during the past month. But Mr Milosevic's influence extends to the economic domain, even in the territory he was forced to abandon to the occupying forces of Nato. For example, EU experts in Pristina estimate that around 20 per cent of Kosovo's faltering electricity supply comes from the Yugoslav grid. Belgrade's historical role as the regional electricity network nexus means it can pull the plug on Kosovo, although - so far - that has happened only once, and briefly, through technical error.

But if Kosovo is the front line with Belgrade, the Milosevic factor applies much more widely throughout the region. After the Nato campaign the allies hoped his regime would be swept away, as demonstrations took hold. That hope has evaporated as Mr Milosevic's opponents have bickered and fallen victim to intimidation.

So the strategy has switched, with the West now devoting more of its efforts to promoting reconciliation and economic prosperity in neighbouring countries. The scope for progress varies and Bosnia-Herzegovina remains scarred by the ethnic meltdown of the 1990s and economically dependent on international aid. But the idea is to foster trade between countries within the region and to use positive examples - nations with pro-market, reforming governments such as Macedonia and Croatia -- as what Mr Patten calls "a beacon" to the others. In this way Serbia will be ringed with democratic, tolerant and multi-ethnic states boasting rising living standards and providing an invitation to the Serbs to throw off their yoke.

But can it work? To the south of Serbia, Slav-dominated Macedonia is the West's showcase success story, a country which, 10 days ago, became the first Balkan nation to sign a Stabilisation and Association Agreement with Brussels, bringing with it the promise of a free trade relationship with the EU.

But even here the policy has its limitations, imposed by that man in Belgrade. In the Macedonian capital, Skopje, the office of the president lies at one end of a grand, ante-chamber of Soviet-style proportions. Inside Boris Trajkovski explains how Macedonia's development has been stunted by the war which cut its links with Yugoslavia, traditionally accounting for 60 per cent of trade. Worse, when the conflict erupted last year Western investors fled, never to return. The mere threat of more instability in the region deters outside investment and Mr Trajkovski concedes that renewed ethnic unrest in southern Serbia could easily spill over into his territory.

Even the EU's ambition to promote trade between countries in the region looks rather lame. Albania has backed away from a free trade agreement and, as Mr Trajkovski put it "only Greece and Bulgaria are real partners".

In Montenegro, which remains technically part of Yugoslavia, the situation is worse still. The government in Podgorica has tried hard to follow the Western route, even though the country traditionally relies on Serbia for 60 per cent of its food. The opening of Montenegro's border with Albania produced a swift response from Belgrade, which placed police check-points on all routes between Serbia and Montenegro, effectively blocking imports.

Montenegro has a spectacular coastline but Mr Milosevic holds the key to the success of the country's tourist industry, a traditional big earner but vulnerable to instability. As the country's Prime Minister, Filip Vujanovic, put it, "by producing tension he prevents tourism and reduces the interest of foreign investors". As part of Yugoslavia (albeit a stubbornly independent one) Montenegro's ability to attract support from the outside world is compromised. Most lenders are forbidden by their own rules from advancing cash to anything but a sovereign state. Montenegro has been discouraged by the West from declaring independence for fear that this would give Belgrade a pretext to invade.

None of which suggests that President Milosevic's position is unassailable or that the West's strategy is wrong. But it does point to the fact that, as long as he stays in office, President Milosevic will be an obstacle to progress.

An indicted war criminal, the Yugoslav president must calculate that his best way of foiling his adversaries is through the de-stabilising use of violence or the threat of it. The result, says President Trajkovski, is a "domino" effect. "As long as Milosevic is in charge in Serbia, there will be no stability in the region".