Eastern Europe

By Kim Iskyan

There's a reason for the popular perception that Russians like their drink: The average Russian citizen consumes 18 liters of pure alcohol per year, compared with about 11 liters per year in Western Europe. But if President Dmitry Medvedev's new anti-drinking campaign is a success, Russians will be toasting a lot less often.

Russian history is littered with failed attempts by imperious leaders with a social engineering streak to interfere in Russians' tippling habits. The most recent effort, the mid-1980s anti-drinking campaign spearheaded by Mikhail Gorbachev, was abandoned in part because it was hugely unpopular.

But the Kremlin has good reason to try again. Russia's drinking problem, which Medvedev has called a "national disaster," has long been cited as a key cause of Russia's ongoing demographic collapse. Alcohol abuse is a key reason why Russian men have a life expectancy of just 60 years, on par with North Korea and Papua New Guinea. In no small part due to alcohol abuse, the U.N. forecasts that Russia's population will fall from the current 142 million to 131 million by 2025, endangering economic growth and national security over the long term.

Medvedev has charged the government with developing an anti-drinking strategy by Dec. 1. Media reports suggest it may include new restrictions on advertising for alcoholic beverages; tightened regulations for low-alcohol content beverages; limitations on the times and locations at which alcoholic beverages can be sold; and price floors for and increased taxes on vodka. The plan will include additional measures to reduce Russia's gray alcohol market. The government is also contemplating whether to re-establish its monopoly on distilled spirits used to make vodka.

The campaign's chances of success may be better than previous Russian battles with the bottle. Some polls have suggested broad support for a temperance campaign. From a fiscal perspective, the relative contribution to the federal budget of alcohol taxation is a small fraction today of what it was during previous attempts to crack down on alcohol consumption, ensuring that lower consumption wouldn't dramatically decrease government revenue. It might even boost government coffers via higher taxes. Finally, the apparent success in the government's effort to eradicate legalized gambling -- as of July 1, all casinos and slot machine parlors operating outside four specified zones were closed -- reflects considerable political will to engineer positive social change, which could be channeled into an anti-alcohol effort.

Russia's anti-alcohol campaign is still in its very early stages. The politically powerful alcohol lobby, wary of higher taxes, could dilute the effort. And there are a lot more Russians drinking than gambling.

Kim Iskyan is a Europe and Eurasia analyst at Eurasia Group

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By Ian Bremmer

It looks like we're headed for another political showdown in Turkey, where the ruling Justice and Development Party, known by its Turkish acronym AKP, has taken a series of actions that will (yet again) antagonize the country's secular establishment in general, and the military in particular.

Secular critics, particularly among the business, media, and military elites, charge that Prime Minister Recep Tayyip Erdogan's AKP means to undermine Turkey's constitution by gradually replacing secularism with Islamism. AKP supporters insist that the party champions religious freedom but poses no threat to Turkey's constitution or its secularist principles.

Following a landslide election victory in 2007, the AKP moved last year to lift a ban on the wearing of headscarves in Turkey's universities. A public prosecutor charged the move violated the constitution's secularist foundation and launched a legal challenge to shut the party down. The case moved to the Constitutional Court, where the AKP government survived by one vote.

Far from chastened, the ruling party is now moving more decisively to assert political authority over the military. On June 26, a late-night legal maneuver without support from the opposition led to passage of a law that will allow army personnel to face trial in civilian (rather than military) courts. There was no debate prior to the vote, and the main opposition party promises to ask the Constitutional Court to strike the law down.

On July 21, the government's Higher Education Board adopted a new rule that will make it easier for graduates of religious schools to gain admission to universities, a hot-button issue for secularists who argue that these schools are incubators of religious extremists.

But the biggest news came earlier this week, when 56 people accused of plotting to overthrow the AKP-led government, including two retired four-star generals, went on trial in the next phase of the so-called Ergenekon investigation. The generals are the most senior military officers ever to stand trial in modern Turkey. Keep in mind, this is a country where the army has overthrown four governments since 1960-though on each occasion, the military has withdrawn relatively quickly and allowed for the restoration of civilian rule.

Since the Ergenekon investigation began two years ago after police discovered a box of grenades in the Istanbul home of a junior military officer, more than 140 people have been charged with membership in the "Ergenekon armed terrorist organization." Eighty-six suspects have been on trial for the past nine months. Fifty-two more were indicted this week.

Prosecutors claim Ergenekon is a nationwide network of people dedicated to destroying the twice-elected AKP government and that it has engaged in terrorist attacks, extortion, and drug trafficking. Many AKP critics charge that Ergenekon doesn't exist and that the ongoing probe is a political stunt meant to intimidate and discredit the secularist opposition. The ongoing arrests and prosecutions are pushing Turkey's politics from simmer toward boil, and the risk is growing that an uneasy truce between the AKP and the military is in jeopardy -- and that another legal attempt to close the party might follow.

All this at a moment when Turkish officials should be focused on stabilizing the domestic economy, undertaking much-needed economic reforms, managing relations with the IMF to ensure external financial support, and putting the country's bid to join the European Union back on track. It's a bad time for an all-out fight, but that's exactly what appears to be brewing.

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By Eurasia Group analyst Alexander Kliment

On July 9, Aman Tuleyev did a remarkable thing. The governor of Kemerovo province in central Russia sent a telegram to global steelmaker ArcelorMittal, which operates three coal mines in the region, demanding that the company continue to operate the mines even if they lose money -- or surrender them to the regional government with zero compensation. This story underlines an important emerging trend for foreign investors in Russia: fear among Russian public officials of rising unemployment has reached a level of urgency that is pushing some of them to extraordinary lengths to stop it.

Faced with dwindling demand for coal this year, ArcelorMittal wanted to cut production and headcount at the mines, which employ about 6,000 people. But in his telegram, Governor Tuleyev warned that his first responsibility was to local workers and that he would not allow closure of the mines under any circumstances. Tuleyev, well known in Russian political circles as a volatile and outspoken crusader for workers, has called in the past for the prosecution of factory owners and the nationalization of their assets. Two days before his warning to Arcelor Mittal, his government seized control of a shuttered electrochemical company after unpaid workers asked for his help.

But this is not a story about one populist governor determined to play the role of friend to the working man. Tuleyev can't do anything with ArcelorMittal mines without (at least) implicit support from Russia's top leadership, and Federal authorities haven't yet weighed in on this issue. In the end, outright expropriation of foreign-owned assets remains unlikely; it would do too much damage to Russia's investment reputation. But the risk for investors in some areas -- especially labor intensive sectors like metals, mining, manufacturing, and automotive -- is becoming increasingly obvious: to preserve social stability, they may be pushed to operate factories or enterprises at a loss under threat of takeover by local authorities. Similar risks could arise even for regional retail and consumer-oriented sectors.

But these governors are responding to increasing political pressure coming from Moscow. Prime Minister Vladimir Putin and President Dmitry Medvedev have pushed governors to deal with rising unemployment and unpaid wages within their provinces without asking federal authorities for help. They can't afford more episodes like the one that took place last month in Pikalyovo, a beleaguered monogorod (a town in which one company employs virtually the entire workforce), where Putin arrived in person to rebuke the owners of shuttered local factories. The prime minister made a show of standing up for the workers and demanding that the factories reopen... before the central government quietly cut the owners -- including well-known oligarch Oleg Deripaska -- a sizable bailout check.

Federal officials can't afford to stage the same show in hundreds of towns and cities and doesn't want responsibility for local economic performance. It's also important to remember that Russia's regional governors are not elected by their constituents. They're appointed by the Kremlin. If a local official like Tuleyev wants to keep his job, he must first please his political masters in Moscow.

Beyond the risks for foreign investors, the seizure of businesses and factories would be bad news for the efficient operations of the companies concerned -- since regional bureaucrats don't usually make effective business managers -- but also potentially for the federal budget. Regional budget revenues, particularly in the regions hardest hit by economic recession, are in freefall this year. Cash-strapped local officials can squeeze regional banks and oligarchs only for so long. Eventually, they will have to turn to Moscow for the money they'll need to keep workers in their jobs. With the fall in prices for oil, gas, and other commodities and the global credit crunch, Russia's economy contracted by about 10 percent over the first half of 2009, and federal budget revenues are falling sharply. More demands from the regions will exacerbate an annual budget deficit already projected at about 8 percent for 2009.

Broadly, Moscow's key political objective of maintaining social stability despite dwindling revenues could begin to place regional officials between a fiscal rock and a political hard place. As that pressure mounts, foreign investors may be among the first to feel the squeeze.

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