BUDGET PRIORITIES. On Monday Medvedev outlined the budget priorities for 2010-2012 to the government. He listed ten: maintain social spending: reduce budget deficit; cut costs; support the industrial and financial sectors; improve the quality of public services; improve the public procurement system; set an “economically justified tax burden”; make authorities responsible for effective spending; establish a “reliable and balanced pension system”; put in place “a barrier-free environment for people with disabilities”. Nothing on defence.

RUSSIA-EU SUMMIT. The summit was held in Khabarovsk (Moscow wanted to show the Europeans just how big Russia is) last week. As is normal with such meetings, the results will only become clear after time. It seems to me that Europe is more open to Russia – I still maintain that the August war was a reality check for most Europeans about the nature of Saakashvili’s regime and the way events were drifting. Perhaps a first sign is the Italian Foreign Minister’s saying that the EU should “enhance strategic relations” with Russia. The summit discussed security (with at least rhetorical openness to Medvedev’s proposals about a new security structure), energy (see Ukraine entry below – another reality check for Europe that perhaps the gas supply problem does not begin and end in Moscow). Press conference here.

RUSSIA INC. As of 25 May Russia’s international reserves were US$402 billion; this is down from the US$450 billion or so at the start of the year but up from the US$385 billion of about six weeks ago.

ENTREPRENEURS. On Tuesday Medvedev addressed representatives of the business community. He reiterated that a large part of Russia’s economic problems stemmed from the fact that “we have such a one-sided economy” and that “diversifying our economy is an absolute priority. And “The creation of an economy based on innovation in Russia must be our number one priority [this requires] a strong culture of entrepreneurship… Such an economy cannot be government-owned.” He then proceeded to mention some things the government was doing to help this develop, particularly a new law “banning the unscheduled inspection of small and medium-sized businesses.” Such inspections are a well-known means of pressuring or reiving money from young businesses. But, as Medvedev admitted, “we know that once something in Russia is forbidden, people often find a way of getting around it”.

NORTH KOREA. Does Moscow have any influence there? I doubt it. Does anyone? Certainly the Six-Party talks don’t seem to have done anything.

CAUCASIAN RUMOURS OF WARS. Low level activity continues: in the last week an arms cache was discovered in Chechnya, a bomb at gas pipeline in Dagestan was disarmed, a “gunman” was killed in Ingushetia and four “militants” were killed in the Kabardin-Balkar Republic.

TROUBLE IN PARADISE. The Abkhaz Vice-President has resigned in protest about the President’s policies.

GAS AND UKRAINE. Ukraine has been very hard hit by the financial crisis and concern is increasing that it may not have enough money to buy the gas that is necessary to make the transit system to Europe work. Gazprom has already pre-paid this year’s transit fees and Putin suggested last week, after a meeting with Tymoshenko, that it might pay five years in advance. Meanwhile, Medvedev proposed that Europe lend money to Ukraine.

HISTORY. The Ukrainian security service has opened criminal proceedings in connection with Holodomor. It continues to insist, in defiance of historical reality, that the famine was specially targeted at Ukrainians: “Through its unlawful activities the regime’s objectives were wholly directed towards the wiping out, through famine, of the Ukrainian national entity”. Many of the former communist countries are airbrushing their history to create a picture of blamelessness in the communist catastrophe.

GEORGIA. The protests continue with about 60,000 gathering at a stadium in Tbilisi. The regime has not taken overt steps to move against the protesters but it is reacting: Burjanadze appealed to diplomats in Georgia to pay attention to what was happening under the covers. Certainly the Western MSM has been keeping pretty quiet. The opposition is planning its next moves but there are reports of disagreement on what to do next. The Patriarch has called for compromise and negotiations. Meanwhile, Russian border guards will start patrolling the Abkhazian and South Ossetian borders: at a time when Georgia night fall apart and the “volatileSaakashvili accuses the opposition of being in Moscow’s pay, this is prudent.

© Patrick Armstrong Analysis, Ottawa, Canada (see