Fears of Russia may be overstated in Europe.
That was the message of Anders Aslund, a onetime Swedish diplomat and now a leading expert on Russia and Eastern Europe based in Washington.
Painting a bleak picture of Russia's prospects, Aslund told a European Parliament hearing on Russia that much of Moscow's recent prowess has been predicated on a gamble by Prime Minister Vladimir Putin.
But the global downturn has caught Putin short, and Aslund says the Russian state now faces a fundamental choice -- and one which could profoundly affect the country's relations with the EU.
"Putin has had luck, but he has done little for Russia, and his regime is fragile. And this means the status quo is not an option today," Aslund said.
"Russia is at a crossroads. There are basically two choices. Either it becomes more authoritarian, with state capitalism and protectionism -- [and] then it has no need for cooperation with the European Union. Or we see a political and economic liberalization, which is the opposite direction," Aslund added.
Aslund said that much of Russia's economic prowess derives from the export of commodities. The tumbling prices of oil and natural gas have left Russia highly vulnerable, as commodities such as these make up 85 percent of Russian exports. These exports could decline by as much as 40 percent this year.
Aslund said Russia's fortunes could change if oil and gas prices were to start rising again. But the Swedish-born expert also pinpointed a number of structural problems facing Russia, regardless of the turns commodity prices may take.
He said, as an example, that corruption in Russia is "out of control." For example, Aslund noted, there has been no significant extension in Russia's road network since 2000, as the country is "too corrupt to undertake major infrastructure projects."
Putin's authoritarian regime has rendered Russia not only corrupt, but also ineffective, Aslund added. The country's state-owned gas company Gazprom, the generator of much of Moscow's recent wealth, is cutting production by 8 percent this year.
Aslund said Gazprom has no funds to develop new gas fields, and with production in the existing four major fields dwindling, pipeline projects like Nord Stream and South Stream are increasingly unaffordable diversions.
The Russia expert was particularly scathing in his assessment of how Putin has handled the downturn. He said the Russian president had been "in denial" about the crisis until two weeks ago, having argued all along it was a U.S. problem.
'Exactly What You Don't Want'
Meanwhile, he said, the country's banking system remains "poor," its policy of gradual devaluation of the ruble has failed, and while the state takes money abroad through propping up currency reserves, Russian companies have to borrow abroad at maximum currency risk to themselves.
"This is exactly what you don't want in a crisis," Aslund said.
What such views might mean for the EU's Russia policy is not immediately clear.
Andrew Wilson, of the European Council of Foreign Relations, says the bloc needs to first close ranks internally and lower its expectations for Russia.
"A first step toward the effective implementation of an internal solidarity principle would be the definition of a principle of the mutual accountability of member states," Wilson says. "A recognition that national foreign policies inevitably impact on other member states and that partnerships therefore inform each other of important policy initiatives."
This would effectively mean going back to the drawing board for the bloc.
Agreeing that the EU "needs a Russia policy," Aslund saw short- and medium-term opportunities opening up for the EU. One, he said, would be reviving the Energy Charter, a set of principles aimed at liberalizing energy trade in Europe, which Russia has signed but not ratified.
Ukraine emerged as a major aspect in the debate. Aslund argued that January's gas crisis has cost Moscow a loss of leverage over Kyiv. He said Russia's reported intention to loan Ukraine $5 billion to help cover its budget deficit is "the first positive gesture Moscow has made since the Orange Revolution" and should be welcomed as such. But, Aslund said, the EU should match whatever Ukraine gets from Russia.
Aslund said the eventual deal between Ukraine and Russia had been a victory for the former, which emerged with a comparatively affordable 20 percent discount off European gas rates. Pointing to a series of photographs, Aslund said he had "rarely seen Putin that unhappy and frightened" as when he emerged on January 18 from talks with Ukrainian Prime Minister Yulia Tymoshenko.
Charles Tannock, the deputy chairman of the European Parliament's delegation for Ukraine, agreed with Aslund. He also attacked President Viktor Yushchenko for turning on Tymoshenko after the deal and reportedly accusing her of having concluded "another Molotov-Ribbentrop Pact" with Putin.
"It's an extraordinary attack on his own prime minister and completely belies the truth, which seems to be [that it was] a reasonably good deal, although with the collapse of the hryvnya it is still going to be very expensive in dollar terms for the burden on industry and for the gas as it comes in now in the coming months."
Wilson, of the European Council of Foreign Relations, said the EU finds Ukraine's "dual" leadership frustrating. He predicted a tug of war between Yushchenko and Tymoshenko could produce "all sorts of crazy stuff" and said Yushchenko's star is on the wane.
Wilson said that like Ukraine, much of the EU and Russia's shared neighborhood is likely to engage in a "collective Tito act" trying to balance the EU against Russia while selectively adopting some of the bloc's legislation.
He said the EU's Neighborhood Policy has been too "introspective" and must now become more mindful of the countries' individual needs.
First of all, Wilson said, the EU must work to strengthen its neighbors' sovereignty.