The crisis over Ukraine, and President Putin's bid to overturn the post-cold war international settlement in Europe, has forced many Western governments to reappraise their approach to Russia. Russia in turn faces mounting internal difficulties. The Russian challenge, therefore, is twofold: both to the West and to Russia itself. The consequences of Moscow's current policy will be increasingly dangerous for Europe and costly for Russia. The questions addressed in this report are how far those costs will rise, whether Russia can bear them, what will happen if it cannot, and how the West should respond in the near and longer term.