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President Vladimir Putin: Ladies and Gentlemen,

It gives me sincere pleasure to meet once again with a great friend of Russia, Italian Prime Minister Silvio Berlusconi. I think that our talks here in Sochi have been exceptionally useful and have given us the opportunity to discuss a wide range of bilateral questions and current regional and international issues in an informal setting.

First of all, we made a detailed and thorough analysis of the prospects for the political dialogue between our two countries, our trade and economic relations, international cooperation and also our humanitarian ties. We were pleased to note that trade between our two countries is growing steadily. It increased by 55 percent over the first half of this year and came to a total of $10.6 billion.

The objectives we have now set on the agenda include improving the structure of Russia’s exports to Italy, increasing the flow of Italian investment into the Russian economy and facilitating Russian investment in Italy. Initiatives aimed at developing direct contacts between Russian and Italian business circles are of great importance in this context.

In this respect, we welcome the Italian government’s decision to hold a Year of Italy in Russia in 2005–2006. I would like to add that for the first time in 30 years, a national exhibition of Russian manufacturers, “Russian-Italian Trade and Economic Cooperation: Reality and Prospects” took place in Rome this June. We emphasised the importance of creating industrial districts in Russia making use of the Italian experience. I would remind you that it was Mr Berlusconi who put forward this initiative here in Sochi in 2002.

We plan to expand our cooperation in the high-technology sectors and we talked about this in depth today. We are looking at working above all in areas such as the aerospace and telecommunications sectors. We already have good experience of working together in these areas and we have significant joint projects to pursue.

The recent MAKS-2005 Aerospace Salon provides one example of the excellent opportunities for our partnership in this area. The pilots of Italy’s Frecce Tricolori demonstrated their exceptional skill during the show. I can tell you that I met recently with Russian specialists, with Russian pilots, and they expressed great admiration for their Italian colleagues’ professionalism and skill. But what is also important is that the air salon resulted in several important agreements being signed between Russian and Italian companies on activating cooperation in the aircraft-manufacturing sector.

The fuel and energy sector remains a priority area for us, both with regards to developing joint projects at bilateral level and working together on specific programmes at the general European level.

It is pleasing to see that our humanitarian ties are developing actively. The Russian-Italian Forum for Civil Society Dialogue has begun its work. Mr Berlusconi and I agree that this forum has great potential for developing direct contacts and facilitating the implementation of joint initiatives by public organisations, scientists and cultural and education representatives in both our countries.

I would like to note the great success of the exhibition, “Russia-Italy: through the centuries.” The exhibition was held in 2004–2005 in both Rome and in Moscow and had more than half-a-million visitors. I am certain that humanitarian cooperation is particularly significant and essential for our two countries with their rich cultural, scientific and education potential. My colleague and I will continue to provide all the necessary help and support to significant cultural events and activities.

We gave a lot of attention during our talks to foreign-policy cooperation between Russia and Italy. One of the principle subjects we discussed was the active fight against international terrorism. On the eve of the anniversary of the tragedy in Beslan, I would like to once again express our particular gratitude to Italy’s people and leadership for their moral support and concrete help in overcoming the consequences of this truly horrific crime.

Mr Berlusconi and I agree that the international community should adopt a united and firm position in the face of international terrorism, a position that rejects double standards and ambiguous interpretation. Our countries are both firmly committed to reinforcing the anti-terrorist activities of the United Nations, in particular through the Security Council’s Counter-terrorism Committee.

We discussed ways forward for developing Russia’s strategic cooperation with the European Union and with NATO. We hope that Italy will continue to provide substantial help to Russia in developing its partnership relations with these organisations. We had a fruitful exchange of views on current international issues, including the situation in Iraq, the state of affairs in the Middle East and other issues. We also discussed a number of regional matters, including preparations for the 2005 Summit in New York. Also, I intend to speak with and seek the advice of the Italian Prime Minister during our further discussions later today and tomorrow morning on Russia’s presidency of the G-8 in 2006.

In conclusion, I would like to stress once again that Russia places great importance on its positive partnership with Italy and we highly value the Italian prime minister, Mr Berlusconi’s constructive commitment to its consistent and dynamic development.

Thank you for your attention.

Silvio Berlusconi: Thank you Mr President. It is a great joy and honour to be your guest here in Sochi, and to have the opportunity to exchange opinions on problems and issues related to international politics and our bilateral relations. Our discussions are scheduled formany hours and allow us to discuss many international issues, and to understand the positions our governments hold. Actually, these positions are based on the same views, hopes, and fears.

Regarding the cooperation between our countries, it follows from our countries' centuries-old tradition of unqualified friendship and mutual respect. This cooperation is developing in many different areas—politics, culture, and also in trade and economics. The President of Russia Vladimir Putin, has listed all the initiatives that have already been implemented, and those that we hope to implement in the future, thereby strengthening our relations. I would like to emphasise that we attach huge importance to technological exchange between our countries, and to cooperation in high-tech spheres such as aerospace and telecommunications. I also think its important to mention that we have signed major agreements in these spheres. Now, it is necessary to swiftly implement these projects, and to support them from both sides, so that in addition to producing high-tech products, we will solve problems related to their sale on the world market.

Naturally, we intend to develop our relations in the energy sector. In the near future, important contacts will be made between the heads of Italian energy companies, and “Gazprom” and other companies, to develop practical cooperation in this sector.

Regarding initiatives in culture and education between our countries, I can say that we have always had contacts in this sphere, and are going to develop them further.

Regarding foreign policy, we compared our points of view on the forthcoming meeting in New York. I feel that the President of Russia agrees that rather than accelerating UN reform, it is best to find a reform project that is supported by the largest possible consensus.

I would like to close my speech on this topic.

We are having an excellent time together, and are discussing political questions in a productive way.

Thank you.

Question: Your dialogue in Sochi will last almost three days. To what extent does personal contact between heads of state help to overcome the problems and stereotypes which invariably exist between NATO, Russia and the EU?

A second question regards the cooperation in the energy sector that you mentioned. Can you describe the extent of Russian-Italian cooperation in the energy sector in more detail?

Vladimir Putin: Today, the level of our relations, including personal ones, is such that problems between our states simply do not exist.

Regarding the relations between Russia and the international organizations of which Italy is a member—NATO, the EU—we aspire to develop our relations with these organisations. In general, we are satisfied with our dialogue with the EU and NATO. We see that Italy, as a true friend, is sincerely trying to help us. On the one hand, she is trying to understand our position and those of her partners within the organisations, and on the other hand, she is looking for compromise solutions in an unbiased way. And this is a very essential factor in both Europe's and the world's development. We consider this to be very significant indeed.

For this reason, today Mr Berlusconi and I paid a great deal of attention to issues concerning Russia's relations with the EU, with NATO, and also non-bloc problems of a sensitive nature. We have already talked about Iraq, the Middle East, and many other issues.

Regarding the energy sector, Italy is certainly one of our priority partners. As you know, we developed the “Blue Stream” project, that crosses the Black Sea to Turkey, with our Italian partners. In July, the Prime Minister of Turkey Mr Erdogan, was my guest here in Sochi. We have very serious plans to develop relations in this sector, including three-way cooperation. Italy is one of the biggest consumers of Russian energy resources, and we are interested in our companies—first and foremost, Gazprom—receiving the opportunity to make additional investments in Italy's energy sector, including in energy distribution networks. On our side, we are ready to consider the opportunities for Italian investments in the Russian energy sector; similar in kind to the present cooperation with our German partners.

It is pleasant for me to note that our relations are developing successfully, not only with Ente Nazionale Idrocarburi—our traditional, steady and stable partner—but also with other Italian companies, including new partners. All of these relations are set on a very solid, stable basis and have good prospects.

I would also like to note that cooperation in the energy sector necessarily induces cooperation in other spheres. For example, in the electric power industry our leading company, Unified Energy System of Russia, intends to involve one of the largest Italian companies in the development of its projects in Nizhny Novgorod. The same applies to the communications sector. In general, to a certain extent the energy sector acts as the catalyst for increasing and diversifying our relations with Italy in the sphere of economics.

Silvio Berlusconi: If the President of Russia will allow me, I would like to add that the cooperation that has developed between our countries has already resulted in Russian investments in Italy. For example, the company Severstal obtained 62 percent of the steel-making company Lucchini, located in Brescia, for 500 million euros. This is a sign that investments are free to flow in both directions, and indicates our governments' support.

Question: Good afternoon Mr President and Mr Prime Minister. I would like to remind you of what Mr Berlusconi said regarding international issues, where both Russia and Italy have concerns, hopes, and a common point of view regarding their outcome. How do you see the prospects for stability in Iraq considering that Sunnis refused the Iraqi constitution? Also relating to international problems, Mr Berlusconi spoke of the wide consensus necessary for UN reform to take place. Can this consensus be created from a different composition of the Security Council's permanent members, or with different countries rotating between places? How do you think this consensus will be attained?

Vladimir Putin: First of all, regarding Iraq we consider any steps towards normalising the situation to be extremely positive ones. If during the constitution's preparation, it was possible for some of the involved parties to come to an agreement we welcome this as a positive achievement. It is already good.

Naturally, the fact that all of the religious groups participating in the process react differently to the proposed variant causes concern. And I am absolutely convinced that we must create conditions for all the ethnic and religious groups in Iraq to come to a consensus regarding this difficult question. Moreover, until we can create such conditions, there is the danger of armed resistance. We must see this clearly. This is the first issue I wanted to raise.

The second regards UN reform. We have already explained our position many times. We do not have a problem with accepting new permanent members such as Japan, Germany, India or Brazil. Among these countries, we consider that Germany certainly has the right to apply for a seat, and we would support Germany's nomination. However, this would only be in the event that the overwhelming majority of United Nations members support this method of reform. We have a great deal of consideration for this universal, international tool, for which we do not see any replacement in the near future. In addition, we are afraid that hasty decisions could divide the organisation. For this reason, I will once again repeat that Russia will support propositions that benefit from overwhelming support of the members of the United Nations.

Silvio Berlusconi: As for me, I would like to note the following thing. We endorse Iraq's constitution with great enthusiasm. We expect the remaining provinces to also accept this constitution, knowing that there are difficulties in those provinces where there is a Sunni majority. However, we hope to overcome these difficulties, and that the constitution—the basic, fundamental law of any nation, which transforms normal society into a state—will be accepted by the majority of the Iraqi population. We hope that this will be the case. Regarding the constitution's text, I feel that it contains all of a true democracy's basic principles. Anyone who familiarises themselves with this constitution will be convinced that it is well written and can guarantee future democracy and freedom to the Iraqi people.

Regarding the reform of the UN Security Council, I know President Putin's position—a position that has been confirmed during our private discussions—that, considering the special trade and economic relations which have developed over many years between Russia and Germany, Russia will support Germany's nomination if all elements of reform benefit from wide-spread backing.

We do not feel that a wide consensus will be attained. Today, we should not discuss reforms with world leaders, as many countries in different continents might be dissatisfied. If certain countries from different continents were to enter the UN Security Council, than it would certainly put three or four other countries at these continents in an uncomfortable position. For this reason, it is necessary to find a version of reform that could act as a stepping stone for overcoming discontent, and find a positive way to give this institution more force and authority regarding the settlement of international problems. This can be achieved if the reform benefits from vast support and a consensus.

Italy's contribution to the UN's budget is the sixth largest, and forty thousand Italian servicemen work for the UN and participate in different peace-keeping operations. For this reason, it is absolutely legitimate for us to expect that either Italy become one of the rotational members of the Security Council or, that the reform not exclude her from such an important organ. We will assertively defend our position.

(The rest of Vladimir Putin and Silvio Berlusconi's discussion with journalists continued in an informal atmosphere).