Ben Aris in Moscow -

The "#hello 1937" Twitter hashtag suddenly went viral on June 12 when Russian police swooped on prominent opposition leaders, just as thousands were gathering in central Moscow for the latest street protest against the Kremlin.

The hashtag is a reference to the start of Stalin's Terror of the late 1930s, when the secret police arrested and shot hundreds of thousands of people. No one was shot this time, but just a few days after the new harsh law giving the police sweeping powers to arrest and prevent public protests (that contradicts article 31 of the Russian constitution guaranteeing the right of public assembly), the authorities raided the homes of most of the movement's high-profile leaders and called them into the state investigation committee, ensuring few could appear at the rally of June 12.

One-time "It Girl" and increasingly respected Kremlin critic, Ksenia Sobchak, tweeted that she didn't even have time to get dressed before police forced their way into her apartment. Popular blogger and the face of the opposition so far, Alexei Navalny, said that police smashed his door down in their eagerness to enter his apartment. "There is a search going on in my home," Navalny wrote on Twitter shortly after 8:00am local time, in a message that instantly went global. "They almost split the door in two."

In a feeble excuse for the politically motivated raids, police said they were conducting an investigation into the violence that broke out between riot police and protesters at the last opposition demonstration on May 6, the day before Vladimir Putin's presidential inauguration.

Since Russia's political conscience awoke from its apathy in December with the first street demonstrations, the Kremlin is responding with a mixture of the carrot and the stick. Dmitry Medvedev re-introduced the popular elections for regional governors as one of his last acts as president last year, but this stands in stark contrast to this new, restrictive law on demonstrations. The Kremlin is clearly trying to find a balance between placating the rising dissatisfaction with the government, and making sure it stays in control of the situation.

In doing so, what minor democratic advances that have been made in Russia over the past decade are now being rolled back. And this is being played out not just in Russia - other countries in Central and Eastern Europe and the Commonwealth of Independent States (CEE/CIS) are also seeing governments roll back freedoms in the name of stability and in doing so are becoming increasingly autocratic and authoritarian.

This prompts the question: is this a theme that threatens to play out across the region or will it be restricted to a few isolated cases? The answer is neither simple nor conclusive. But the fact the question is even being asked is in itself significant.

The golden years

In the years since the fall of the Iron Curtain and break-up of the Soviet Union over 20 years ago, few have questioned the path that these countries in transition have been on. They have developed market-oriented economies and introduced legislation, often drafted by the EU, to create liberal democracies.

But everything has changed since 2008. First the financial crisis struck, bringing down huge financial institutions and rocking the very foundations of capitalism. This then turned into an economic crisis, bringing recession, economic hardship, unemployment and austerity. Today, this has morphed into a crisis of the EU itself, which threatens to demolish the single currency and even cause the economic bloc to disintegrate.

The pain of the crisis has certainly led to some of the more progressive countries in the region going backwards rapidly in the search for stability. Hungary and Ukraine were singled out as particularly bad in a June report by the non-governmental organisation Freedom House. "In an alarmingly short period of time, the [President Viktor] Yanukovych government in Ukraine has closed the democratic space that was opened after the Orange Revolution of late 2004," Freedom House wrote in its annual report "Nations in Transit 2012", adding that the country has gone backwards in five of the eight categories it uses to measure democracy in just the last year.

The situation in Hungary is not much better. Since taking office in 2010, Hungarian Prime Minister Viktor Orban has taken Hungary from one of the most democratic counties in Freedom House's "Nations in Transit 2012" to one of the worst. "Hungary's precipitous descent is the most glaring example among the newer European Union members. Its deterioration over the past five years has affected institutions that form the bedrock of democratically accountable systems, including independent courts and media," says Sylvana Habdank-Kołaczkowska, project director for "Nations in Transit".

In journalist Paul Lendvai's recent book, "Hungary: Between Democracy and Authoritarianism", reviewed here, Hungary is described as "no longer a western-style democracy. It is an illiberal or managed democracy, in the sense that all important decisions are made by [Prime Minister Viktor] Orban." The author details how Orban uses powerful friends in the world of business to build up a loyal and sophisticated media network to provide unswerving support, while continually playing a dangerous game with neighbouring states that contain ethnic Hungarian minorities to keep national emotions running high.

In addition to Hungary, Freedom House identifies another five countries that have also reined in their independent media: Bulgaria, the Czech Republic, Lithuania, Romania and Slovakia. Declines in judicial independence were the most widespread problem, and there have been mass arrests in Azerbaijan, Belarus, Kazakhstan, Russia and Ukraine in the last year.

Even the well-liked countries amongst international investors have suffered from this backsliding. Marcus Svedberg, chief economist at East Capital, points out that Turkey, "democratic yet increasingly intolerant," has weathered the crisis well. According to the Organisation for Security and Cooperation in Europe, Turkey has more than 100 journalists behind bars, meaning it jails more than China or Iran. "But this isn't just about the press - students, academics, artists and opposition MPs have all recently been targeted for daring to speak out against the government of prime minister Recep Tayyip Erdogan and his mildly Islamist Justice and Development Party, or AKP," writes Mehdi Hasan in The Guardian, who describes "a new climate of fear in Istanbul."

Some famously undemocratic countries have also dealt well with the crisis in the last two years (although they have also had their share of protests and riots). The economies of Russia, Kazakhstan and Belarus are still on track to grow this year, yet they all count amongst the least democratic in the world. And at the extreme end of the scale is China, which is still going gangbusters but doesn't even pretend to be democratic. The key to success, it seems, is a combination of prudent policy pre-crisis, coupled with the ability to act decisively once the storm breaks.

Yet a handful of the most successful countries in weathering the crisis are also amongst the most democratic. Poland stands out as arguably the only country that has dealt with the crisis well at the same time as advancing democracy. The only EU country that avoided recession in 2009, Poland also posted the greatest net improvement in Freedom House's survey. In October, for the first time in Poland's post-communist history, the incumbent government was re-elected, "signalling a more stable and mature political system," says Freedom House.

Perhaps the most impressive of all have been the scrappy democracies of the tiny Baltic states, which achieved "the impossible" by forcing down wages and engineering internal devaluations that led to a strong bounce back at the start of this year. How did these states manage to achieve what Greece and other EU states on the periphery are so manifestly failing to do? Maybe the chaos and poverty of the 1990s is still so fresh in people's minds that governments there were given a freer hand to take drastic action. "Undertaking the necessary austerity measures at an early stage had a triple beneficial effect. First, it allowed the Baltics to benefit from positive confidence effects. Second, it allowed Latvia to return to the financial markets well ahead of schedule. Third, it allowed growth to bounce back after exceptionally severe output contractions. In 2011, the Baltic countries were the three best performers in the EU in terms of GDP growth. At a time when all euro area policymakers urgently sought ways to re-launch growth, this is a remarkable achievement," P O Neill wrote on A Fist Full of Euros in June.

J curve

Ian Bremmer, founder of the Eurasia Group, in his book "The J Curve," showed that in the long run democracies produce more prosperity, but at the price of less stability. Authoritarian regimes are more stable, but the level of prosperity is capped at a relatively low level. And Bremmer says not all countries make the transition from one system to the other - the bloody war in Yugoslavia being a poignant example.

Plamen Monovski, chief investment officer of Renaissance Asset Managers, and others have persuasively argued that the so-called "Washington Consensus" has failed, but no real alternative has emerged. China is experimenting with its "one party, two systems" model and Russia is doing something similar with its "sovereign democracy". Both these approaches put more emphasis on the state than the more traditional personal liberties that are at the core of representative democracies of the West, and neither are committed to the idea of democracy or civil liberties as a political philosophy. These countries are at a time of unprecedented crisis in the world feeling their way towards a more workable system of control - and erring on the side of limiting personal freedoms and curtailing civil society. "Russia is half awake and will not slide back into slumber," an extremely heavy hitting team of political analysts of Dmitri Trenin, Maria Lipman, Alexey Malashenko, Nikolay Petrov from Carnegie Endowment for International Peace wrote in an excellent paper recently, "Russia on the Move", which calls on the West to engage Russia, not reject it.

"But the real nature of the change is murky. How and from where change will come, when it will happen, or what forces, and in what proportion, will be the primary beneficiaries of the change remain uncertain. Bumpy and haphazard - rather than gradual - evolution toward a more open political system remains the best but not the only scenario," the Carnegie team concludes.