After just six weeks as NATO secretary-general, Anders Fogh Rasmussen has his first crisis. The alliance may be slowly bleeding in an intractable war in Afghanistan, but the immediate cause is the U.S. administration's decision to shelve a planned missile shield due to have been built in Poland and the Czech Republic.

The shield, energetically promoted by former President George W. Bush, was designed to intercept a small number of missiles fired by Iran or some other "rogue state". But Russia saw it as a threat to its own nuclear deterrent and NATO's new east European members saw it as a useful deterrent against Russian bullying, by putting U.S. strategic assets on their soil.

President Barack Obama's decision to drop plans to install it on Polish and Czech territory leaves those former Soviet satellites feeling betrayed -- because they expended political capital to win parliamentary support -- and more exposed to a resurgent Russia, especially after its use of force against Georgia last year.

Obama's move is clearly part of a warming of U.S. relations with Moscow from which Washington hopes to gain help in return on supply routes to Afghanistan, pressure on Iran to rein in its nuclear programme, and an agreement on radical cuts in nuclear arsenals. But this "reset" of U.S.-Russian relations has only exacerbated the rift within NATO over Russia.

The three Baltic states and Poland were particularly critical of NATO's low-key response to Moscow's military action in Georgia. Some said the refusal of west European allies led by Germany and France to agree at a NATO summit last year to putting Georgia and Ukraine on a path to NATO membership emboldened the Kremlin to act. President Dimitry Medvedev's harsh attack on Ukraine's leader in an open letter last month fanned their fears of Russian bullying of its neighbours.

East European officials cite Moscow's playing with the gas taps and trade disputes, and its apparent determination to keep its Black Sea fleet in the Crimean port of Odessa Sevastopol beyond a 2017 deadline agreed with Ukraine as part of a strategy of tension intended to reverse the "colour revolutions" in Kiev and Tbilisi, and bring other former Soviet republics to heel.

All that makes it a particularly awkward moment for Rasmussen to deliver his inaugural keynote speech on NATO-Russia relations on Friday in Brussels. The former Danish prime minister has put a few noses out of joint in his first weeks by making clear he intends to run NATO in a more results-oriented way, leaving less room and time for ambassadors in the North Atlantic Council to debate any idea to a standstill. He has set strict time-limits on council meetings, streamlined flabby agendas and outsourced the drafting of a new Strategic Concept to a group of 12 experts led by former U.S. Secretary of State Madeleine Albright, on which not all allies are represented.

His personal management style and high media profile (monthly news conferences, a blog and Twitter chatter) has sharpened the traditional Kabuki dance in which a new boss and the old board flex their muscles at each other in mutual suspicion, insiders say. It is the first time a former prime minister, used to running a government and to talking to fellow national leaders, has been picked for the job. Previous secretaries-general were former defence or foreign ministers, more accustomed to being servants of the member nations.

Both camps within NATO (which privately brand each other the "Friends of Russia", and the "Cold Warriors") will be watching every word of Rasmussen's Russia speech to ensure he does not depart from alliance policy. The fact is that NATO has been unable to agree on an overall policy towards Russia since the 1990s, when it declared that Moscow was no longer an adversary.

Rasmussen hopes to launch NATO's own modest "reset" of ties with Russia, offering closer cooperation on Afghanistan, a joint threat assessment and work on non-proliferation of nuclear weapons. NATO officials have received assurances that Moscow will respond positively and breathe new life into the NATO-Russia Council.

None of that will assuage NATO's east European members, who are likely to press harder now for practical steps to give credibility to the alliance's Article V mutual defence commitment. That could involve drafting military plans to reinforce the Baltic republics and Poland, and holding joint military exercises on those countries' territory. The French and Germans have resisted such ideas in the past as unnecessarily provocative to Moscow. If NATO cannot agree to such moves, the United States may have to do more on its own to compensate its jilted friends.

(note: corrects Odessa to Sevastopol in 6th paragraph)

European Union officials are thinking the unthinkable — they could hold a summit in July, during the normally sacrosanct summer break set aside for Brussels’ Eurocrats.

Diplomats say there is mild panic in the EU capital at the thought that the regular June summit — where the bloc is due to discuss the Lisbon treaty reforming the EU — could be chaired by Eurosceptic Czech President Vaclav Klaus.

The idea is that it would be better to postpone the discussions on the treaty until July, by which time Sweden will have replaced the Czech Republic as holder of the EU presidency.

Prague has not yet confirmed which of its officials will chair the June 18-19 Brussels summit after the collapse of the Prague government last month. But Klaus, who has described the Lisbon treaty as an irrelevance, could try to do so.

The aim of the Brussels summit is to agree a set of assurances to Ireland that the Lisbon treaty will not undermine its sovereignty — a move intended to help Dublin win a second referendum on the text slated for October.

Treaty backers say it will streamline the functioning of the 27-nation EU and give it a stronger voice in the world, for example by creating a more permanent EU president. 

Some of them say it would be better not to have Klaus trying to broker a deal to rescue the treaty if the summit talks become difficult. 

Others give the idea of a July summit short shrift. Sweden itself is not keen. Ireland has described the debate as”speculative conversations” and would prefer to get on with it.

“Postponing it until July causes significant difficulties,” Foreign Minister Micheal Martin said of the packed domestic Irish political calendar leading up to the referendum.

It looks like Brussels’ bureaucrats may get their July break after all.

This is one in a series of post cards from Reuters correspondents across Europe, Middle East and Africa, recounting how the financial crisis is playing out in the capitals where they are based.

The Czechs appear to be riding out this crisis but it’s a matter of where you live.

In Prague, it’s as if all the bad news – the government ousted halfway through its stint as European Union president, industry falling off a cliff – was happening somewhere else. But the Czechs haven’t had a strong government since 1996, and the 2 percent economic contraction this year is nothing when compared to Latvia or even Germany.

I overhear a lot people discussing banks shedding workers, would-be home buyers being turned down for mortgages, and hotels cutting rates. But I don’t know anyone who has lost a job and there are still throngs of Italians and Germans flowing through Prague’s tourist sites. Also, it’s true that real estate prices are falling, but that’s largely in the dilapidated communist blocks and the eerily similar new builds thrown up by Anglo-funded developers now facing bankruptcy.

In smaller industrial towns it’s very different. Although Angela Merkel’s scrap subsidy looks to have saved the car plants for now, many producers are suffering. Shops and restaurants are empty. It almost feels like it did 10 years ago when the country was just getting used to the idea of capitalism.
One thing to remember, though, is that most Czechs are used to hardship. They save. They don’t shop much. And on weekends, many people head for the countryside, where some 50 percent have a second home in their family. Once there, people keep gardens and orchards and raise bees to produce honey. No kidding. They hike in the hills, and at night they go to the pub where a beer still costs a dollar. It’s largely a return to the 1990s, and most people are depending on the more modest way of living they’ve known for most of their lives.

(People enjoy a sunny day in a park in Prague April 15, 2009. The sunny weather is expected to last until Friday when rain is forecast. REUTERS/David W Cerny (CZECH REPUBLIC WEATHER SOCIETY ENVIRONMENT))

The Czech opposition toppled Prime Minister Mirek Topolanek’s minority cabinet on Tuesday in a no-confidence vote. Three days earlier, Hungary’s prime minister said he would resign to let someone else pull that country out of its economic mire. Although serious, the developments were far from surprising if complaints about the economic crisis by anti-government parties and disgruntled voters were anything to go by.

But don’t blame it all on the economic crisis. Even with unemployment on the rise and housing prices tanking, wobbly governments in this region are nothing new and political mayhem is still far off.

In fact, only a handful of governments have ever won re-election in central and eastern Europe since the fall of communism, and none twice. A mid-term collapse is much more common. Now opposition parties ever on the lookout for opportunity — Topolanek’s no confidence vote on Tuesday was his fifth — have the deteriorating economy on their side. But that might also be a poison pill, particularly in countries like Hungary or the Baltics, where whoever holds sway will have to enact deep spending cuts to level out their imbalanced economies — spending cuts that won’t be popular among the voting public.

And who says those ousted from power actually step aside? Take the energetic Latvians. The country of 2.3 million has run through 14 governments since it quit the Soviet Union in 1991 in a revolving-door style of politics in which the same parties continue to cycle in and out of power. Its new prime minister is Valdis Dombrovskis, a former finance minister, who formed a six-party coalition including the four parties of the government that collapsed in February due to the economic crisis. One of his first actions was to approach the International Monetary Fund and the EU to let his cabinet spend more than originally agreed when Riga took a 7.5 billion euro rescue package last year, a move that has been received coolly by the Fund.

In Hungary, the soon-to-be-former leader of the ruling Socialist-led coalition, Ferenc Gyurcsany, sparked riots in 2006 when he let slip in a leaked tape that his party lied “in the morning… in the evening… and at night” about how bad the economy was so he could get re-elected. Now the economy is much worse off. Budapest had to agree to a $25 billion IMF-led bailout last year, under which it will have to make unpopular spending cuts. The economy will shrink by as much as 5 percent or more this year, according to some analysts. Gyurcsany tried to push through reforms but had to pull back due to public resentment. So now it’s time for a change in government, right? Wrong. Although Gyurcsany won’t be in the driving seat, his Socialists are working on a government with their former ruling partners the Free Democrats. The Free Democrats have called for strict budget prudence, which is exactly what the IMF and economists have prescribed for years, while Gyurscsany will remain the head of his party, with the potential to maintain some power behind the scenes. But the question is how viable any state spending cuts will be with budget revenues plummeting along with growth.

Topolanek’s case is also nothing new. The Czechs haven’t had a strong majority government since 1996, which still didn’t stop them from attracting billions of dollars in foreign direct investment, joining NATO and the EU, enjoying growth of 5 percent for several years running, and keeping their budget relatively in check. And even after losing Tuesday’s no-confidence vote, Topolanek, like Gyurcsany, will seek a new mandate for his party as well. Analysts say there’s only one way out of the situation for “super-deficit” countries like Hungary and Latvia, and that is to cut back. The Social Democrats who toppled Topolanek will want to spend more on social sectors if they can take power, but how far will they be able to go when tax revenues are falling with growth?

Poles and Czechs, their economies still relatively robust  despite global recession, are up in arms about what they see as international investors’ tendency to tar them with the same brush as their more troubled neighbours such as Hungary, Ukraine and Latvia.

But if history is any guide, investors are unlikely to be impressed, at least in the shorter term.

Poland’s zloty has fallen more than debt-ridden Hungary’s forint since last summer, even though Budapest had to negotiate an emergency IMF-led bailout, while the Czech crown is also down
some 16 percent from its 2008 highs.

But at an EU summit last weekend, Polish and Czech leaders refused to back a Hungarian appeal for a 180-billion-euro region-wide bailout, saying they did not need such help.

The European Commission and German Chancellor Angela Merkel have endorsed the Polish and Czech pleas to be judged on their own merits rather than by their geographical location.

“Not all the countries are in the same situation. You cannot compare the situation of the Latvian economy to the situation of the Czech economy,” European Economic and Monetary Affairs
Commissioner Joaquin Almunia said in Prague this week.

However, in his book “The Return of Depression Economics”, Nobel economics laureate Paul Krugman describes how countries as diverse as mainly agrarian Indonesia and industrial powerhouse South Korea were swept up by the 1997 Asian crisis.

“The appetite of investors for the region had been fed by the perception of a shared “Asian miracle”. When one country’s economy turned out not to be all that miraculous after all, it shook faith in all the others,” he wrote.

Krugman also analyses how quickly contagion, in an age of huge cross-border cash flows, struck Latin America in a similarly indiscriminate way, and on several occasions.

Fast forward to 2009, and emerging Europe’s ‘miracle’ is rapidly dissolving. Policymakers will point out that the Czech Republic has higher GDP per capita and far less debt than some older EU member states, but such virtue is not an automatic defence in turbulent times.

And while there are obvious differences — many, though not all, states in central and eastern Europe are EU members which can draw on help from the Union’s institutions, including the European Central Bank — there are some parallels too.

Back in 1997, then-Malaysian leader Mahathir Mohamad accused speculators such as international financier George Soros of being responsible for Southeast Asia’s economic woes and called
for a ban on currency trading.

In a joint statement on Wednesday, eastern European bank supervisors hit out at negative Western press over their financial sectors following commentators’ suggestions that the region may prove to be “the sub-prime of Europe”.

And Polish central bank governor Slawomir Skrzypek called for talks with the European Central Bank and the European Commission on ways to prevent “speculators” who profit from steep falls in currencies such as the zloty from receiving public funds in bailouts being organised by Western governments.

Polish tabloid Fakt was more succinct, comparing foreign bankers speculating against the zloty to “vampires”.

(Poland’s Prime Minister Donald Tusk (L) leaves after shaking hands with Czech Republic’s Prime Minister Mirek Topolanek, whose country currently holds the rotating presidency of EU, at the start of an emergency European Union leaders summit in Brussels March 1, 2009. EU leaders meeting in Brussels on Sunday will discuss possible action on the financial crisis amid concern Eastern European countries may need more help. REUTERS/Sebastien Pirlet (BELGIUM))

Russia’s angry response to an accord between Washington and Prague on building part of a U.S. missile defence shield in the Czech Republic is reminiscent of the rhetoric of the Cold War. Although Russian President Dmitry Medvedev says Moscow still wants talks on the missile shield, his Foreign Ministry has threatened a “military-technical” response if the shield is deployed.

That phrase could have come straight out of the Soviet lexicon and seems more at home in the second half of the last century than now. Russian military analyst Pavel Felgenhauer called it psychological pressure to try to encourage opposition to the missile system among Europeans, and described it as “the same sort that was used in the 1980s by the Soviet Union when the United States deployed cruise missiles in Europe.”

We are, of course, a long way from the tensions of the Cold War. But the dispute is reminiscent of the war of words between the Soviet Union and the United States in the 1980s over another missile defence system — the Strategic Defence Initiative proposed by Ronald Reagan. His dream of a partly space-based missile system, otherwise known as Star Wars after George Lucas’ 1977 film, never became a reality but the row over it plagued Soviet-U.S. relations for years.

The disagreement over the missile defence system that George W. Bush now wants to be partly based in Europe risks having a similar impact on U.S.-Russian relations. Perhaps fittingly, it has been referred to as Son of Star Wars.

I was a correspondent in Moscow in the 1980s when the dispute over Star Wars was at its height. The disagreements were clear. Reagan wanted to deploy a multi-billion-dollar land- and space-based shield to shoot down incoming missiles. Soviet leader Mikhail Gorbachev said the programme would disrupt the nuclear balance and fuel an arms race in space, and expressed  hope that Europe would not become “a testing-ground for the Pentagon’s doctrines of a limited nuclear war”. 

The disagreement led to the collapse of a 1986 superpower summit in Iceland.

When I was back in Moscow in the 1990s, Bill Clinton and Boris Yeltsin were at loggerheads over U.S. plans for a Star Wars-style missile defence umbrella, even though Clinton had pulled the plug on Star Wars in 1993. Moscow said plans to develop the new missile defence system would violate the 1972 Anti-Ballistic Missile Treaty, an agreement Moscow saw as a cornerstone of global security.

Similar issues hung over Vladimir Putin’s presidency and now threaten to strike a severe blow to hopes of an improvement in U.S.-Russian ties at the very start of Medvedev’s presidency.

Washington says it needs a missile defence system based partly in Europe to provide protection against any attack on  European or U.S. targets by rogue states such as Iran, which tested new long- and medium-range missiles on Wednesday. Russia says the missiles could threaten its own defences and might become a bigger threat over time it if the system expanded.

In the 1980s, Moscow was worried about a project that would have based missiles outside the former Soviet-led Warsaw Pact. It is now concerned about a system that would be even closer to home. A radar tracker is to be placed on Czech soil and, if a deal is reached with Warsaw, 10 interceptor missiles could be installed in Poland. Both Poland and what was then Czechoslovakia were members of the Warsaw Pact.

If Poland does not reach an agreement with the United States, Lithuania has been suggested an alternative site for the interceptors. That would be an even less welcome prospect for Moscow because the Baltic state was part of the Soviet Union. Little surprise, then, that Medvedev took a firm line on the issue in comments he made at the group of Eight summit in Japan.

But Moscow could risk shooting itself in the foot by reverting to rhetoric that harks back to the Cold War. Michal Kaminski, an aide to Polish President Lech Kaczynski said on Wednesday Russia’s reaction was unacceptable. He said it showed Poland should “strengthen our alliance with the United States because beyond our eastern border there are politicians who use a language we thought had vanished many years ago, the language of might and imperial ambitions.”