In the clearest indication yet on who would succeed as Russia's president in next year's elections, Vladimir Putin endorsed vice prime minister Dmitri Medvedev. Putin, who has insisted he will step down after a second term in office despite pleas to change the constitution and run again, managed to please practically everyone.

Russia's markets surged after the soft-spoken Medvedev, who has a liberal reputation, was suggested for candidacy, while Western officials reacted with cautious relief at the news. The announcement also ended weeks of suspense across Russia as to whom would be the next individual to fill Putin's shoes. The Russian president continues to enjoy sky-high ratings in public opinion polls, and Medvedev has good reason to believe that some of Putin's stardust will rub off on him. Medvedev, who has yet to be registered as a candidate, responded Tuesday by suggesting Putin become prime minister after his term expires. This was interpreted as a campaign move similar to the one adopted by United Russia ahead of the Duma elections.

The 42-year old presidential hopeful was "anointed" just a week after the December 2 poll, as President Putin met in the Kremlin on Monday with leaders of four parties. These were United Russia, which won a constitutional majority largely thanks to Putin's agreement to head its electoral list, A Just Russia, and two others that didn't pass the 7 percent threshold, Agrarian Russia and Civil Force. "We believe that this is the most socially-oriented candidate," United Russia leader Boris Gryzlov told Putin, referring to Medvedev's latest stint as the man in charge of Russia's "national priority" projects aimed at bettering the social sphere. "There are real results, and that is most important," he continued. "And we think that the next four years could be devoted to raising the standards of living. Now only the first steps have been made, and we all think that Dmitri Anatolyevich Medvedev could lead these efforts."

Addressing the four parties, which Putin described as representing "various layers of Russian society," the Russian president said that "we have a chance to form stable power in the Russian Federation after the March 2008 elections. And not just a stable government, but a government that will continue the course which has brought positive results over the last eight years. Where Dmitri Anatolyevich Medvedev is concerned, I can say that I've known him for over 17 years. We have worked very closely all these years, and I fully and completely support this choice."

Until now, the most unequivocal clues as to what would happen to Putin and the presidency after March were Putin's agreement to side with United Russia in October. Being associated with a political party that has a constitutional majority in parliament allows Putin a certain degree of influence no matter who is president. Later, Putin also suggested that he might become prime minister. In that sense, Medvedev's statement on Tuesday that it was of "tremendous importance" that Putin hold the "top executive post" was not a complete surprise.

Until now the question of final succession remained open, even if it had already become clear that Putin would retain considerable influence as a "national leader." According to some observers, this question has already been answered.

Medvedev, who won support from all four Duma parties, was seen as an equally likely candidate along with another vice prime minister, Sergei Ivanov, who formerly headed the defense ministry. But after Med­vedev's nomination, Ivanov also pledged his support. "I knew about this decision in advance, and I supported it and support it now," he told journalists.

"This is the successor, not a minion," analyst Ivan Safranchuk, who heads the Moscow office of the Center for Defense Information, told The Moscow News, dispelling speculation that the Kremlin could establish a nominal president for a short period of time until Putin could return to power. "Medvedev is not a temporary figure, this is long-term."

Kremlin insiders have confirmed that the government has indeed finally settled on a successor.

But Medvedev's closeness and loyalty to the president, as well as his proposal that Putin head the cabinet, suggests that Putin won't be far from power. "The assumption that Putin will stay in some form has been confirmed," Fyodor Lukyanov, political expert and chief editor of Russia in Global Affairs, told The Moscow News. "I'm certain that [the power structure] will be presented in a way as to make clear that the main person is the prime minister and not the president. It will be a more multicentered power system where the presidential post will be limited by checks and balances."

But it is too early to tell how much influence Putin will retain. According to Russia's constitution, the prime minister is appointed by the president, and even if parliament refuses to approve the appointment, the president has the power to dissolve parliament. Theoretically, United Russia's constitutional majority gives it the power to change the rules, but there have been no clear signals from the Kremlin or from United Russia that it intends to do so. In fact, last month Medvedev told Western journalists that a parliamentary democracy where the prime minister has more power than the president was "incompatible" with Russian realities.

While many Russian observers stopped holding their breaths, a candidate with Medvedev's background appeared welcome in the business community and in the West.

Ariel Cohen of the Heritage Foundation told RIA Novosti that Medvedev was well known in the United States and that Washington reacted "adequately" to his nomination. News reports described a similar atmosphere in Brussels. Cohen explained that the nomination signals an end to what he called an agreement with the siloviki - former security officials with government posts.

"Medvedev can continue the pro-European trend in Russian policy," Ivan Safranchuk says. "Sure, we might fight, but on a whole we are for a strong, independent Europe that is friends with us. He can continue a policy oriented towards getting Europe to be our long-term partner."

"He is called a liberal primarily because he is not from the siloviki establishment, he is one of the few that is not a general or a colonel of the special forces," says Lukyanov, who points out that Gazprom is a 100 percent state monopoly. However liberal, Lukyanov doubts that Medvedev will fully determine Russia's economic policy.

A lawyer by trade, Medvedev has been in government since 2000, when he became Putin's first deputy chief of staff. He was promoted to chief of staff in 2003, and became the deputy prime minister in November 2005. His domestic popularity - which, according to polls, has been moderate but steady in the last few months - is associated to a large degree with the series of national priority projects in housing, health care, and agriculture that he spearheaded. Indeed, it was through his appearances with farmers on television that Russians came to know about him.

But more important from the business perspective is Medvedev's status as chairman of the Gazprom state gas monopoly, which he has held since 2002. Even though he chaired the board of the company that took over then-independent NTV, Medvedev was behind the company's liberalization policies that led to high capitalization. Meanwhile, in interviews given to the press, Medvedev has come off as an economic liberal who happens to head projects aimed at improving the standard of living of many Russians.

In this light, it is no wonder that Russian markets reacted so positively to the news. The RTS climbed nearly 2 percent on Monday, reflecting a general surge across the markets. Vneshtorkgbank shares climbed 3.9 percent, while Gazprom shares rose 2.2 percent.

"The market interprets Medvedev as a market-oriented person," says Ovanes Oganisian of Renaissance Capital. "We can recall that he was only 22 when perestroika started, so most of his adult life was in the post-perestroika period. This is a very important factor." He added that Medvedev's reputation for liberalization at Gazprom was undoubtedly an asset for the business community.

That, it seems, is the key, however. "Remember, he still has to win the elections," says Alexei Nikonov, a consultant at the Polity Foundation, even if we may have seen the "contours of the future government." After all, other contenders include Communist leader Gennady Zyuganov and Vladimir Zhirinovsky, the head of the nationalist LDPR party.