After several years of rising tension, hopes are being raised across Europe that tomorrow's inauguration of Dmitry Medvedev as the new president of Russia will mark a significant improvement in relations. The optimistic scenario is that Medvedev will turn out to be a liberal who uses his predecessor's legacy of revived national self-confidence to usher in an era of democratic reform and constructive diplomacy from a position of strength. A more realistic prognosis is that Putin has created an authoritarian regime too corrupted by power to change, except reluctantly and under pressure of circumstance.
Medvedev owes his position to the managed part of Putin's "managed democracy" and is not about to turn on the system that created him. Even if he wanted to, he lacks the independent power base to try. He will enjoy the title and trappings of office, but Putin will remain Russia's de facto national leader. As prime minister-elect and leader of a party controlling two-thirds of the Duma, he is already unsackable. But the real source of power is his ability to deliver the "men in epaulets", the securocrats that have come to dominate the state office under his leadership. We can be sure that Putin will work hard to keep it that way. After all, he wouldn't want to end up in London fighting an extradition demand from one of his successors.
He has, nevertheless, chosen a good moment to step out of the limelight, not least because the fragility of his achievement in orchestrating Russia's national revival is about to become apparent. The nation's demographic profile remains awful, with average male life expectancy at 59 and a population set to shrink by up to a third over the next four decades. For all the bombastic talk about Russia's return to the top table of world power, Putin still hasn't found a way to stop large numbers of Russian men drinking themselves into an early grave.
A more immediate problem, and one entirely of Putin's own creation, is the looming crisis in the Russian energy sector, newly restored to state control by means of intimidation and outright illegality. Productive enterprises have been forcibly taken over by inefficient state companies that have failed to invest in replacement production and will soon struggle to meet domestic demand, let alone export commitments. This means that even if energy prices remain high, the foreign earnings that have boosted Russian growth could start to dwindle unless corrective action is taken soon.
One way the Russian government plans to do this is to reduce consumption by raising domestic energy prices now that elections are safely out of the way. Whether this can be done to the level required without provoking a political backlash is open to doubt. In a country of widening inequality and rising inflation, cheap gas is an important plank of social welfare. As Putin found when he tried to monetise pensioner benefits three years ago, the Russian people are capable of taking to the streets when their material security is threatened.
A popular protest movement that became a serious opposition would soon start to ask awkward questions about the kind of regime Putin has created and the extent of its mismanagement and abuse of national resources. Far from "liquidating the oligarchs as a class", Putin has simply redistributed wealth from the Yeltsin "family" to his own cabal. This new oligarchy may conceal its identity behind public office, but it is motivated by the same desire for self-enrichment. Harsher economic times ahead would lay that bitter truth bare for the Russian people to see. Unfortunately, there is no guarantee that this opposition would assume a liberal and democratic character. A population fed on anti-foreigner paranoia and chauvinist revivalism could easily take a different course.
Either way, strong or weak, Russia represents a foreign policy challenge Europe cannot ignore. Unfortunately, its recent record in dealing with Moscow is one of lamentable weakness and division, allowing Russia to dictate terms to a block three and a half times its size. With the EU and Russia due to open negotiations on a new cooperation and free trade agreement in the summer, there is an opportunity to restore balance by setting out a clear choice. Russia can be a close and trusted partner if it is prepared to respect the multilateral rules and democratic standards it has signed up to. But if it continues to use authoritarian and coercive methods at home and abroad, the EU should seek to immunise itself from their effects. Terms of access to the single market would be more restricted; Russia would no longer be treated as a member of the democratic club and an automatic member of its institutions; and concerted efforts would be made to reduce dependence on Russian energy.
One test of EU resolve will be how it handles the issue of the Energy Charter Treaty, one of a growing list of binding international instruments Russia is unilaterally defying. It would certainly be perverse to sign a generous trade pact with a county that is breaking the rules at our expense by adopting monopolistic policies and using energy supplies as a weapon against its neighbours. If Russia wants free trade, then it must honour its promise to build an energy relationship based on fair commercial principles instead of power politics. If it wants to secure the right of Gazprom to buy up major European energy companies, it must open its own market on a reciprocal basis and stop expropriating private investments.
Apart from anything else, this would be greatly to Russia's own advantage in helping to deal with its internal problems. The politicisation of energy supply is proving to be self-defeating because it is destroying trust and deterring the investment Russia needs to maintain production and growth. The Putin model of corrupt authoritarianism will not enable Russia to address its social and economic problems and establish its long-term revival. The sooner it can develop a relationship with the EU around principles of liberal multilateralism and economic openness, the better for both.
It may be that a domestic energy crisis persuades Medvedev and Putin of this truth and forces them to change for reasons of pure self-interest. There is certainly evidence that they are capable of thinking pragmatically in that way. It was the combination of high energy prices and the failure of European governments to push back against Russia's authoritarian lurch that encouraged Putin to drop cooperative engagement in favour of coercive diplomacy. It is only by setting firm limits now and making it clear that Russia stands to lose from continuing down its current path that the EU can secure the fresh start it wants.
David Clark, a former government adviser and chairman of the Russia Foundation.