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)

It’s time to get Russia back into proportion.

Moscow’s resurgence as a major power, determined to be treated with respect and to stamp its influence on its neighborhood, has been one of the big stories of 2008.

The sight of Russian tanks rolling into Georgia in August, coupled with a Kremlin drive to extend its control over energy supply routes to Europe, sent shivers through former Soviet satellite countries and drew loud condemnation from Washington.

President Dmitry Medvedev’s threat to site short-range missiles in Kaliningrad aimed at Poland if Warsaw deploys part of a planned U.S. missile shield raised the rhetorical stakes.

Yet the global financial crisis, the collapse of oil prices, the aftermath of the Georgia war and U.S. President-elect Barack Obama’s victory have all cast doubt on Russia’s real weight.

The credit crunch has hit Russia harder than other emerging economies, hammering confidence in its stocks, bonds and the rouble and forcing the central bank to spend some of its huge foreign currency reserves to stabilize the financial system.

Foreign portfolio investors have fled and many Russian investors have parked more of their money in foreign currency abroad, at least partly due to heightened political risk since the military action in Georgia.

State gas monopoly Gazprom (GAZP.MM: Quote, Profile, Research, Stock Buzz), feared in many parts of Europe as a predator seeking a stranglehold on the continent’s gas supply, has lost more than two-thirds of its market capitalization since May.

SHRINKING POPULATION

With oil prices down from a peak of $147 a barrel in July to below $50 now, the heavily oil-and-gas-dependent economy looks more vulnerable, especially since Russia needs Western technology to boost its energy extraction.

Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, says that after a 10-year boom, growth will fall to between 0 and 3 percent next year.

Russia remains a lucrative market for Western consumer goods, but concerns about state meddling in business, widespread corruption and shortcomings in the rule of law have contributed to its failure to diversify away from hydrocarbons and minerals.

Compounding the weakness of its non-energy economy, Russia’s demographics are among the worst in the world, with a life expectancy of just 67 (60 for men) and the combination of a low birth-rate, an aging population and a public health crisis.

The Organization for Economic Cooperation and Development (OECD) projects the population could shrink by nearly one-third by 2050 to 100 million from 143 million.

Diplomatically, Russia overreached itself after its lightning military victory in Georgia by recognizing the breakaway regions of South Ossetia and Abkhazia as independent.

Only Nicaragua followed suit. Major allies such as China and India, fearing the precedent, pointedly declined.

The European Union, the main customer for Russian gas, has responded by accelerating efforts to reduce its dependency, planning an alternative supply corridor through Turkey and seeking new suppliers in Africa, the Middle East and Central Asia.

Other former Soviet republics, including Azerbaijan, Belarus and Turkmenistan, have sought closer ties with the West.

True, the U.S.-led NATO alliance has gone no further toward giving Georgia and Ukraine a roadmap to membership — the issue is off the agenda for now — and it has now resumed some frozen contacts with Russia, as has the EU.

But Moscow’s efforts to reshape the security architecture of Europe, sidelining the role of the United States and of the Organization for Security and Cooperation in Europe, loathed by Moscow for its election monitoring, have gained little traction.

STATUS QUO POWER?

Russian analysts insist the Georgia war was a defensive action responding to pro-Western Georgian President Mikheil Saakashvili’s bid to retake control of South Ossetia by force.

“Russia is a status quo power, not a recidivist aggressor on the prowl,” says Dmitry Trenin, head of the Moscow office of Carnegie Endowment for International Peace.

Moscow has taken a number of steps recently to suggest it wants peaceful solutions to other “frozen conflicts” in its neighborhood, brokering the first summit talks between Armenia and Azerbaijan over Nagorno-Karabakh, and seeking a deal between Moldova and its breakaway region of Transdniestria.

In Ukraine, the biggest former Soviet republic where a democratic “Orange Revolution” in 2004 infuriated the Kremlin, Russia has other political and economic levers it can pull to maintain influence without having to use force.

Getting Russia into proportion does not mean ignoring Moscow or its security interests. Its location and the fact it supplies 40 percent of Europe’s gas imports mean it cannot be neglected.

The United States and the EU have an interest in binding Moscow rapidly into rule-based international bodies such as the World Trade Organization and the OECD, although they put both processes on hold in reprisal for the Georgia war.

Some Western analysts believe a weak Russia could be more dangerous, if mishandled, than a strong one.

In NATO circles, some see a risk of the “Weimarisation” of Russia, comparing it to Germany’s economically enfeebled Weimar Republic that was swept away by the rise of Hitler’s Nazi party.

Political humiliation and economic instability could lead to a surge of aggressive nationalism.

After the collapse of the Soviet Union in 1991, wags branded Boris Yeltsin’s rump Russian Federation “Upper Volta with nukes,” capturing the paradox of a failed state with a ruined economy sitting on a huge arsenal of atomic weapons.

When Vladimir Putin succeeded Yeltsin in 2000, he was determined to restore Russia’s power and pride after a decade in which many Russians felt the West ignored their interests by expanding NATO in ex-communist eastern Europe.

Today, it sometimes seems that Russophiles and Russophobes in Europe and the United States have become objective allies in exaggerating the importance of or the threat from Moscow.

A more self-confident Europe and a less unilateralist America need to find a way of engaging with Russia according to its true weight, without treating it as a giant.