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Good afternoon - we've almost finished an intensive series of meetings, where Defence Ministers have been able to look back on a year of substantial achievement in NATO. It may have lacked the high drama of last year, but we have worked hard to build on the successes in Kosovo, learning and applying the lessons of that campaign, and continuing the process of strengthening NATO for this new century.

At the core of that hard work has been improving our defence capabilities - the heart of any military defence alliance, and the key factor by which we will, and should, be judged. Kosovo proved the strength of NATO, but it also highlighted key shortcomings and showed what was necessary to build a stronger NATO for the future.

The good news is that NATO's nations are responding. The argument that defence cuts have gone too far has been won. After years of falling defence spending, the decline has now been halted, and in many cases reversed.

Eleven out of 16 European NATO Allies plan real increases in defence spending next year, and radical reforms which will suit today's armed forces for tomorrow's challenges are underway in most nations.

Real progress on capabilities has been made but it's not enough yet.

We have turned the corner, but we have a long way to go. Defence Ministers today fully acknowledged the task ahead in filling the gaps in our capabilities. That doesn't just mean continuing the process of reform and restructuring; it also means finding the extra resources, the hard cash, needed to do the job. We've started, but we must finish the job.

These plans to strengthen NATO's capabilities go hand in hand with the European Union's desire to improve European capabilities and play a larger role in crisis management. Eleven of the NATO Allies are currently members of the EU, and four others have applied to join. Their resources can be made available for both NATO and EU-led operations - and that is why it is so important that we get the institutional NATO-EU linkages right. We have made progress on that over the past year but a great deal of detailed work remains to be done, both in NATO and the EU. We are looking forward to the outcome of the EU Summit in Nice later this week and taking the work forward in NATO when Foreign Ministers meet here in just over a week.

I say to those reporting this story, bear in mind that we all believe that the transatlantic alliance remains fundamental to our security. NATO will remain the cornerstone of our security.

And while we have discussed ensuring our continuing strength in the future, our forces in Kosovo and Bosnia and Herzegovina continue to demonstrate NATO's value in the present. NATO's forces are keeping the peace in those areas, and have recently made important contributions to preventing further violence in the Presevo Valley in Serbia.

This is a time of hope in the Balkans. The departure of President Milosevic has potentially opened the way to a brighter future not just for Serbia, but also all the neighbouring countries. Instead of a destructive and divisive government, bent on causing trouble there are all the signs of a new constructive attitude.

In Kosovo and Bosnia and Herzegovina there have been successful, largely peaceful elections. In Bosnia refugee returns have increased, while in Kosovo, which I visited last week, violence, although still far too high, continues to decline.

Of course huge problems remain. Ethnic violence, crime and economic stagnation, still blight the area, but there are now genuine prospects for a more stable future. I think NATO can claim a large measure of credit for that, but we know we still have a big job on our hands, and SFOR and KFOR will ensure that the job gets done.