BRUSSELS, Nov 7 (Reuters) The European Union is losing ground in its relationship with a resurgent Russia and should unite behind a new strategy to secure its interests with Moscow, a study by a new think-tank said today.
The European Council on Foreign Relations report said Russia had become the EU's most divisive issue since former US Defence Secretary Donald Rumsfeld split ''old'' and ''new'' Europe in the run-up to the Iraq war in 2003.
Europe's 1990s strategy of trying to democratise and westernise a weak and indebted Russia ias now in tatters and individual member states have undercut a joint approach by striking national deals with Moscow, it said.
''Today, it is the Kremlin that sets the agenda for EU-Russia relations, and it does so in a manner that increasingly defies the rules of the game,'' said former German foreign minister Joschka Fischer, the ECFR's co-chairman.
Authors Mark Leonard and Nicu Popescu contend the EU should adopt a new long-term strategy of holding Russia to the rule of law and agree an early warning system for bilateral ties with Moscow to spare other European partners nasty surprises.
But while they argue the 27-nation bloc has lost leverage through disunity, the study does not explain why big European powers that have built close energy and business ties with Russia would now be willing to change that approach.
The report says the EU is divided between two dominant approaches to Russia -- either managing a perceived threat by a policy of ''soft containment'', or embracing a potential partner in a process of ''creeping integration'' into the European system.
It debunks the notion that this is an east-west split between tougher east Europeans, who lived under Moscow's shadow in the communist era, and more indulgent west Europeans.
The authors brand Greece and Cyprus ''trojan horses'', whose governments often defend positions close to Russian interests, while they call Poland and Lithuania ''new Cold warriors'', overtly hostile and willing to use their veto to block EU negotiations with Moscow.
But between those two extremes, they say there are several shades of behaviour.
PRAGMATISTS Germany, France, Italy and Spain are described as ''strategic partners'' that have built special bilateral relationships with the Kremlin, sometimes undercutting common EU objectives such as energy policy and relations with ex-Soviet eastern neighours.
Ten small countries spanning east and west -- Austria, Belgium, Bulgaria, Finland, Hungary, Luxembourg, Malta, Slovakia, Slovenia and Portugal -- are ''friendly pragmatists'', who tend to put business before politics with Moscow.
A further nine states including both old and new members -- Britain, the Czech Republic, Denmark, Estonia, Ireland, Latvia, the Netherlands, Sweden and Romania -- are ''frosty pragmatists'', critical of Russia on human rights and democracy but still keen to do business with it.
The report says the EU should push for the implementation of all international agreements and standards to which Russia has committed itself and make Russia's participation in the Group of Eight conditional on its commitment to the rule of law.
The other major industrial nations should meet at lower level in the G7 format, without Russia, if Moscow does not cooperate, it says.
EU states should give the European Commission the right to pre-approve major energy deals and power to use EU competition regulations to investigate energy deals with Russia, it said.
The EU should also use its Neighbourhood Policy to draw former Soviet states such as Ukraine, Georgia, Moldova and Belarus towards Europe, it added.
Reuters RC RN0917