I very much appreciate the opportunity to return to Munich and Bavaria. It's an extraordinarily beautiful city -- the first one I actually visited in Europe, many decades ago. And I am very pleased that we have such a strong congressional delegation here. I have learned over the years that a close involvement and engagement with our Congress is critical to a successful U.S. foreign policy. Their leadership is vital. I had an opportunity to listen to both Senator McCain and Senator Lieberman yesterday and particularly with their focus on Iran and Darfur, where we work closely with Senator Lieberman. I think it is very helpful for the audience to get a fuller sense of the U.S. attitudes on these issues.

So I thank them for taking the time.

I also thank my friend Horst for the invitation and the excellent program. And it is a particular pleasure to be here with the Deputy Prime Minister and the Foreign Minister. I have known Sergey Ivanov since the late 1990s, and, as I think many of you know, he brings a particularly strong strategic sense to these topics but also with a very good operational and practical feel. And I found his remarks very helpful in that regard.

I have had an opportunity to work with Foreign Minister Steinmeier more recently, but I certainly know of his record of strong accomplishment and I very much appreciate the partnership and what I thought what was a very important address setting out German views on an important set of issues.

Today's panel, and indeed the presence of the Chancellor yesterday, prompted me to recall an earlier period of government service -- from 1989 to 1992 where I worked very closely with Germany and Russia, which I haven't had the chance to do more recently. When I returned to the State Department early in 2005, I had a very similar sense to the one that I had when I first entered the State Department in late 1988 with Secretary James Baker. In late 1988, the apparently stable ground of the Cold War began to shift. Of course it is easier to recognize this in retrospect. And many expected the status quo of that time to hold, but as I believe Chancellor Bismarck once remarked, that it is the sign of a statesperson to recognize fate as she rushes past and to grab on to her cloak. And in that sense, I want to say that Horst Teltschik was one of those people with the Chancellor who very much recognized that and played a critical role not only for Germany but for Europe as a whole. And the years immediately after 1988 and 1989 brought were nothing less than seismic changes.

Well, in early 2005, when I started to assume this new post, the ground seemed to be shifting again -- this time, throughout the broader Middle East. President Bush and Secretaries Rice and Rumsfeld who have pointed out the key security transformations that have been driven by the events of September 11th, but of course there are astounding political changes as well -- the elections in Afghanistan, Iraq, Lebanon, the Palestinian Territories. For my part, when I was serving as our Trade Representative, one could see the economic dimensions of this change. The winds of economic globalization were changing outlooks and opportunities but also raising anxieties.

Having worked with some of the countries in the Gulf ten or fifteen years before and seeing what seemed to be a very different economic attitude, I was struck with some very hands-on experience with countries like Jordan and Morocco and Bahrain and Oman, the UAE -- each of which we have negotiated free trade agreements with through extensive documents. Moving ahead to bring Saudi Arabia into the WTO. And also a very important country -- Egypt, where there is now a solid economic reform team and the starts of political change with the fits and starts one might expect. Indeed I had the good fortune of attending an event in Egypt, one of my last as Trade Representative with then Trade Minister Olmert, which turned out to be the first agreement between Israel and Egypt in twenty years. It was a qualified industrial zone process drawing on the United States.

Now of course we are very far from being able to determine the shifts of this new landscape. I recall Mark Twain once said, that history doesn't repeat itself, but sometimes it rhymes. So perhaps we have to determine the nature of this rhyme.

The movements toward openness have cleared the way for the rise of political Islam. It is taking different forms and it is struggling to determine what role it will have in a democracy. The changes are also combined with a virulent radical Islamic terrorism. This is most typified in my view by the letters from Zawahiri to Zarqawi, which make the agenda very clear. It is to create a new caliphate. It is to throw out the infidels. It is to overthrow the apostates.

These changes clearly pose very real economic and security challenges for all of us. And the response is not just military or counter-terrorism, although that is a vital part. And the response is not just support for political and economic reforms, although that is a vital part. As Goh Chok Tong of Singapore stated, this is a contest of ideas. In effect, it is a struggle for the soul of Islam, and ultimately only Muslims can decide that outcome. But others -- all of us here -- can have an effect on it.

In that context, I want to say I very much appreciate the comments that Minister Steinmeier said about the terrible violence that took place in Damascus with the Danish and Norwegian embassies - others hurt as well. President Bush promptly issued a statement emphasizing our solidarity with Denmark and our European allies. And as the Minister said, undoubtedly the cartoons were offensive and insensitive to religious beliefs, but part of the challenge is developing societies where we respect religious freedom but also freedom of the press. The role here of people who disagree is to criticize, to debate, certainly not to turn to violence, and certainly not to manipulate that violence for other political purposes.

So, I also hope that some of those who raised their voice, appropriately so, on the cartoons, will raise their voice on other issues that go to the question of the soul of Islam -- including beheadings and bombings and attacking of other religious faiths.

In addition to the agenda I just outlined, we also have a very important transatlantic agenda - the unfinished work of 1989. It includes the integration, the development and the security of the new members of the European Union and NATO. It is finally determining the peaceful democratic place of the Balkans in Europe and the Euro-Atlantic community, as was discussed in the panel yesterday. It also means assisting the fragile new democracies in the European space, such as Ukraine and Georgia. And of very great importance, building a constructive relationship among Russia, the European Union, the United States and NATO.

Now to appreciate Russia's position today, I personally find it useful to step back a few years to the time that President Putin assumed office. Without knowing for sure, I suspect the view of President Putin and his very close colleagues, was that Russia was disintegrating - in societal terms, territorial terms, institutional terms. Crime and corruption seemed to be eating away aspects of the state. I believe that President Putin's primary focus was to restore the Russian state, its patriotism, and to focus on Russian interest.

Well, I believe there is a substantial overlap of interests among the United States, Germany, Europe and Russia. Certainly as my colleagues have said, there is an interest in countering terrorism and radical Islam. There is an interest in helping to re-build countries such as Afghanistan that have become breeding grounds of danger. Stopping nuclear proliferation by dangerous states such as Iran and North Korea.

And here I am very pleased that Russia may be developing a special role in exploring the possibility of developing internationalization of the nuclear fuel cycle, where perhaps Russia and the United States have a particular historical responsibility.

I also work a great deal with Asia; and I encounter my Russian colleagues at meetings of APEC and the ASEAN countries and Southeast Asia. I think the interest in northeast Asia in particular where we still have problems with the Cold War -- and even World War II -- that are still frozen and need to be addressed.

I believe that Russians share a strong interest in the U.S. dialogue with China about the concept of developing China as a responsible stakeholder in the international system.

And of course we have shared interests in transnational topics such as Avian influenza, infectious diseases. We should cooperate with major humanitarian challenges. Senator Lieberman talked yesterday about the problems in Darfur. Well, Russia has agreed to take part in the peacekeeping mission in the south and UNMIS, with some important transportation capacities. Obviously they will be working very closely with us in the UN Security Council. I will also emphasize that the partnership with the European Union on this couldn't be better as we deal with what is a very, very difficult problem.

We have a common interest in Russia's accession into the WTO, to integrate it into a rules-based trading and economic system.

But at the same time, we need to recognize we do have differences with Russia. My personal view is that this might stress from the fact that Russia's re-building of state power has overshot the target. I am concerned that state capitalism will impede Russia's economic development. I can see from the variety of the work I do that it is leading to investor uncertainty, which will not be good for Russia or the international economy.

Sometimes I have seen around the world that over-reliance on high resource prices can mislead about the nature of economic development.

Russia's approach to energy security, I am concerned, may also lead to insecurity, although I appreciate Sergey's offer to talk about that further today.

A strong state can choke off the development of civil society. So, as Minister Steinmeier said, we are all very interested in the implementation of the new NGO laws and the election process in Russia, over the course of the coming months.

Then, equally important, there is the issue of Russia's perspectives on its neighbors. And here, I will just offer a comment I made to some Russian friends during the course of the 90s when I was outside government. I was trying to share a historical perspective. I sometimes had the sense that as Russia looked upon its neighbors, it had a 19th-century view of the world. And what I mean by that is that in the 19th century, big powers often wanted weaker neighbors that they could dominate. But if you look at the experience of the European Union and the United States, as we start in the 21st century, this has been flipped. We recognize that weak neighbors export problems, whether they be dangers of immigration, whether they be dangers of transnational problems, whether they be nests of terrorism. And so, our strategy has been to try to strengthen our neighbors - with varying degrees of success.

So I think where we have again a common interest is working with Russia to try to seek healthier, stable, more confident neighbors. I believe Russia and all of us will be better off with a healthy, prosperous, secure, democratic Ukraine, Georgia, Belarus, countries of central Asia; and of course, the relationships with the Baltics and Poland, I think will be strengthened by the confidence that the Poles and the Baltics have with their place in the Euro-Atlantic community. And I hope they, too, will reach out to Russia.

Now a word on Germany and the European Union, as well. Having been involved with these issues for a considerable period of time, I do want to pause because I think it is very notable to recognize the changes in Germany's willingness to conduct military operations beyond its border. This was not the Germany of 1989 or 1990; and credit on this belongs on To all the major parties in Germany, that have led to a significant shift. This is very important for the future of NATO and Germany and the transatlantic relationship. Of course, it leaves issues of resources and capabilities but I think the change of strategic course is important. I also believe that Chancellor Merkel, a political leader who arose out of the changes of 1989, is raising the issues of freedom and democracy, as well as development, as part of German and European foreign policy. And I noted the Foreign Minister emphasized these same points. For those who have worked closely with Germany and Europe, this is a change from the traditional focus on "Stabilitaet" -- stability. So I think this could be a change that accords with the shifting ground of 2005 and 2006.

As we reflect on the changes of '89 and 2005, it's I think a common theme, is that they both challenge the conventional wisdom of the time. And, as I have reflected on some of the tensions in U.S.-European relations over the past years, one insight might be that, normally in world history, it's the strongest powers that try to preserve the status quo. Perhaps one of the confounding parts of U.S. policy has been that the United States has been challenging the status quo. European politics over the past ten years -- except for the issue of enlargement, and that's a big exception, because it is a very important issue - has generally valued the status quo. Now I understand the intellectual and political energy that has been channeled into European architecture, and know the significance of it; but I would suggest that the changes in the world that we have touched on today are shaking these traditional assumptions. So I would just close to suggest that perhaps the measure of European, Russian and American cooperation will be how we address, in practical terms, as Sergey Ivanov mentioned, four challenges.

First, the leftover work from 1989, in the broader European space.

Second, the new challenges in the broader Middle East, especially radical Islamic terrorism, and now connected to the dangers of nuclear proliferation.

Third, the rise of China, including the adjustments and changes that will be triggered throughout East Asia and South Asia.

And finally globalization, which offers incredible opportunities for economic development and growth but we also have to recognize that it is not easy to integrate 3 to 4 billion people in the world economy. The world economy, circa 1989, was about a billion people. Adding 3 or 4 billion, not surprisingly, will be a challenging process. So we are going to have to assist societies, developed and developing, to manage the process of change. And clearly, we will be better off with all four challenges if the United States, Europe and Russia are cooperating on these activities.

Thank you. (Applause)

[Excerpted text - questions and other panelists responses not included]
Complete statements by Deputy Secretary Zoellick in Q&A session:

Deputy Secretary Zoellick: I will try to be brief. The interesting question about the Iraq-Iran lessons. While I think it is an interesting search, we also have some very different circumstances we need to recognize. But I think one key point is the importance of building a coalition to deal with the problem. And in building a coalition, it requires some actions on all the potential parties. That is why we have been very intent on trying to first work with the EU-3, use the international system, the IAEA, the UN to build this coalition. And in the process, make clear our position to the Iranian government and the Iranian people - I want to come back to that point -- because I think Saddam Hussein felt he could divide the United States, Europe and others. And this might have led to some miscommunications and misimpressions on his part of some of those evidences revealed. Iran will try to divide us, too. And so it is very important that we try to work together, send a common message, as was done strongly yesterday.

And here I will just draw a connection we have some from Asia in the audience. I was in China about a week ago and had some extensive discussion with our Chinese colleagues not only about the importance of this international system but the importance to China's own energy interests which are obvious. But you have to ask yourself if you are concerned about stability in a energy- producing area and you have a country that has supported terrorism and says that Israel has no right to exist, denies the Holocaust, develops a nuclear weapon - that is not very good for stability in a major energy-producing area. So simply on interest base there is an important reason to work together. And I appreciate the cooperation that we did get from China.

An important point on this is that you may have seen President Bush yesterday after the vote made a point about trying to have the Iranians have a clear sense of where next to go. And this partly goes to Senator Lieberman's point. And it was focusing on suspension, cooperation with the IAEA, negotiation. He also emphasized that this was not the end of diplomacy but it is the start of a new phase of more intense diplomacy. But he combined it with a message to the Iranian people, which is to make very clear - and this is something I think, I hope, all of us can do together. This is not about developing a civilian nuclear energy program. And here is where, I think, the Russian cooperation has been very, very helpful. We need to drive this point home to the Iranian people and others. That is not what this is about. What this is about is developing a nuclear weapons program and the dangers that are associated with it. So perhaps one of the lessons as we have talked about is how to develop options like having the fuel cycle separate from the civilian nuclear program.

And I think another lesson and this goes back to some of Richard Perle's points, too, is understanding the internals of the countries as best we can. We don't really do that that well. Not sure we did that that well with Iraq, and I also think we need to do better with Iran, as we proceed.

One other point is the connections of issues with Iraq and Iran. And here particularly for a European audience, I am glad I have a chance to underscore a point. People talk about the upheaval that is represented by the Palestinian elections. Keep in mind: there has been a big upheaval in Israel at the same point. You had first an upheaval in Sharon's position in terms of frankly making a historic decision that you couldn't have a greater Israel and a Jewish state and a democracy. And so the pathway that was set by Sharon and is now being followed by Olmert is very clear. They are opting for the Jewish state and the democracy.

But when you combine the uncertainty in Israel with the stroke of Sharon -- an election that to some Israelis says: We are back to 1947. We have got neighbors that don't believe we should exist. And then you add an Iranian nuclear program that is extremely dangerous. And so in looking at the Iranian nuclear program, it is important to see its connection to issues of Middle East peace, which we are also interested in.

And last and final point: As I emphasized in my remarks, I think there is a tremendous amount of common interest with Russia, the United States and the European Union. It does also, I think, it is part of what gives us the opportunity where we do disagree to say so honestly and openly. I have met civil society members from Belarus. I don't know what would happen in an election. But my test for that would be: open it up and have a fair and free election and see.

...

Deputy Secretary Zoellick: Okay, I will just take two.

On the Georgia and energy security issue, what the Georgians have explained to us, was that they were in a terrible situation. They bought energy temporarily from Iran. But the whole nature of your question explains why I think this has been misframed by Russia and some other countries. I have an economics background. So when I look at energy security issues, I don't see it just in terms of manipulating this flow or that flow.

I see that the way to deal with energy security issues is: number one, multiply non-oil and gas supplies, whether they be nuclear, clean coal, solar, others; second, multiply and diversify oil and gas supplies from a variety of sources; third, work on the demand side, and efficiency and conservation; fourth, develop strategic petroleum reserves to deal with emergency situations; and then fifth, try to deal with the security chokepoints, as the NATO Secretary-General said.

I think there is a good agenda there, for all of us to be working on, as opposed to trying squeeze one country or another.

On Darfur, which Dick asks. Dick, it is far beyond me to explain the position that is outlined in the New York Times. That would be too much of a burden for me to carry (laughter). I hope that the movement is much quicker.

As you could see, our excellent Ambassador in the UN, John Bolton, has moved quick off the mark during the short month of February when we are Chair to try to move forward the UN peacekeeping mission; and as you said, the first step was just taken a day or two ago. And we hope that we can try to move that forward during the month where we are chairing it. As we do so, and I know you know this subject well, we need to work very closely with the African Union AMIS force, not only because of trying to develop African solutions for African problems -- but they are the people on the ground, and frankly they have done a pretty good job under difficult circumstances. We all know they are going to need more support, but this now leads to questions, which I hope we can deal with quickly, about the size, the mandate, how to move that mission forward. Frankly, that is one reason I stopped in Paris on the way here and talked about this with the NATO Secretary General and frankly had some good discussions with China on it a week ago, trying to move this process forward.

The NATO part, however, is that since there will be a period, even under best of circumstances and an interim period before you get an expanded UN peacekeeping force, which I hope will blue-helmet a large number of the African Union forces, that we believe there are things that NATO, and if the EU wishes, can be done to increase the performance of those 7,000 personnel from the African Union. These tend to be of the nature of logistics operations, planning operations, intel operations. I won't go through the full detail but there have been assessments of performance; and these guys are doing a courageous job. They need better weaponry. The Canadians gave them some armored personnel carriers. And we hope that NATO and the EU can help supply what don't have to be large numbers of skilled people to help that.

And in the context of the discussion yesterday on NATO and EU, I tell you -- both of us have -- I have lived with those discussions for twenty years. I just hope people don't get theological about this. To be honest, it doesn't matter to me whether EU, NATO - we need the help to be able to provide the support in Darfur, so I hope that capitals that sometimes get a little complex about this, don't on this issue - particularly given the fact, that this has now got dangers with Chad as well. And that's another subject that I was in a discussion in, in Paris.

The last point. While we focus on the humanitarian and the security, we also have to keep our eye on the fact that those can only stabilize the situation and therefore we have to move forward the Abuja peace process, which the African Union under Salim Salim is chairing. It's had a slow and sluggish start but there are some signs -- as you know, sometimes these are under the surface -- that we might be able to put the forces together. Although when I read the news stories that have the rebels fighting with each other at the table -- physically -- it always underscores the challenge we have ahead.