Graham Stack in Kyiv -
Ukraine's hosting of this summer's European football championships, the world's fourth largest sporting event, should have been a game changer for perceptions of the country in the West, but President Viktor Yanukovych has, it seems, done everything in his power to turn it into a catastrophe. Even then, it took a photograph of a bruised and apparently beaten former prime minister in a jail cell for the ball to finally end up buried in their own goal.
The Euro 2012 football championships should have been a gift from the gods for Yanukovych in the run-up to challenging parliamentary elections in October 2012, giving him a chance to be seen hobnobbing on home territory with the crÃ¨me de la crÃ¨me of the European political elite. Yet this gift he did not deserve, since the original decision by football's governing body Uefa to award the championships to Ukraine together with Poland was largely the fruit of Ukraine's "Orange Revolution" of 2004 - which was in turn inspired by the desire of hundreds of thousands of Ukrainian who took to the streets to keep Yanukovych out of power and overturn rigged elections he claimed to have won. It seemed a bitter irony of history that this one last remaining fruit of the Orange Revolution should be plucked by the people the Orange Revolution was launched against.
But Yanukovych did not seem particularly grateful for his luck when in October 2011 a Ukrainian court widely seen as acting at his behest sentenced Yulia Tymoshenko, the firebrand leader of the Orange Revolution and former PM, to seven years in jail for abuse of power. In the following months, a further three close Tymoshenko allies all received long jail sentences.
The imprisonment of the opposition prompted widespread consternation in European diplomatic circles, but Ukraine has always been skilled in playing Europe off against Russia. And while European politicians made unhappy noises, no concrete action was taken against Ukraine for fear of pushing Ukraine into Russia's embrace.
The EU instead decided to rely almost entirely on carrot rather than stick - dangling the prospect of the signing of a highly sought-after Association Agreement and Deep Free Trade Zone as soon as Ukraine released Tymoshenko and the others. The EU even proceeded to initialize the agreement in April 2012 as a sign of good faith. There was above all a silent consensus not to politicise Euro 2012, which was intended to symbolise Ukraine's move towards Europe, and which had a powerful defender in the form of Ukraine's co-host Poland. "Keep politics out of football," was the Polish watchword.
There was in fact little to show that the EU was more put out by Tymoshenko's imprisonment than Russia, which believed that the Tymoshenko trial had an "anti-Russian motive", according to Russian Foreign Minister Sergei Lavrov.
All that changed with one picture: a reclining Tymoshenko with bruises across her bared midriff and forearms, following what she claimed was a beating by prison guards as she was forcibly taken for treatment for a back problem.
The photograph has already become an iconic image on a par with the facially scarred Viktor Yuschenko of 2004 and the bald Vladimir Litvinenko of 2006, both victims of political poisonings. A picture speaks louder than a thousand words was the motto in print media days, but in the era of the internet and a $100bn Facebook - the right image is easily worth a million words.
The Tymoshenko photo turned what had been a diplomatic question into a domestic issue for European politicians. With the Euro 2012 championships looming, there was no way of avoiding the connection. A wave of condemnation ran through Europe, and brought an avalanche of declarations that national representatives and European Commission officials should not and would not attend Euro 2012 matches in Ukraine.
Most damaging of all, Europe's most powerful politician German Chancellor Angela Merkel branded Ukraine outright a "dictatorship" on a par with pariah Belarus. Merkel called out the elephant in the room: Ukraine's government has imprisoned its opposition leaders, and this is something only dictatorships do.
Ukraine's leadership has been left reeling - Prime Minster Mykola Azarov has avowed that Tymoshenko's bruises were cleverly applied make-up, but there was no touching up the fact that on a visit to Brussels May 18, not a single top-ranking EU official could find a minute of time to meet with him. European Council President Herman van Rompey was even quoted by Euronews advising Azarov to "stay at home".
Serhiy Tigipko, a bigwig of the ruling Party of Regions and deputy prime minister, duly acknowledged May 19 that Ukraine's government's image has been damaged "externally, but not internally". "This is clear now from the statements of European leaders," Tigipko admitted.
Only Yanukovych appears impervious to the new reality. "Ukraine has not suffered any deterioration in relations with a single European country," he insisted on television on May 20, in the face of what is seen as his biggest foreign policy crisis since coming to power over two years ago.
Anarchy in the Ukraine
The economic fallout from the deterioration in relations with Europe was not long in coming (see accompanying story.
With the euro in flames, stock markets dropped across Europe in the first weeks of May - but nowhere by more than in Ukraine. The bottom has dropped out of the Ukrainian stock market, with a fall of 20% since the start of May outpacing even Greece to become the world's worst performing stock market. While the domestic collapse also relates to low liquidity, London-traded Ukrainian titles on the London Stock Exchange plunged 5-8%. "[May 14] saw a capitulation of Ukrainian equities." Dragon Capital analysts said. Debt markets have also reacted nervously, with Ukraine's sovereign credit default swaps spiking 40 points since early May.
The drastic deepening of the split with the West is raising massive question marks over what were Ukraine's key anchors for investors: the proposed EU Association Agreement and deep free trade zone put on hold, and partnership with key lenders such as the International Monetary Fund, World Bank and European Bank for Reconstruction and Development (EBRD). Andre Kuusvek, Ukraine country head at the EBRD, has warned publicly that Ukraine was facing pariah status because of the Tymoshenko case. "Laws are implemented in a speculative way. And that is affecting the security of investments," Kuusvek said at the EBRD's annual general meeting in London on May 18.
Euro 2012 was intended as a motor for foreign direct investment (FDI), but the opposite is now becoming true. Foreign direct investment is almost dead. Despite rising wages and a mini-retail boom, net FDI fell by 6.9% on the year in the first quarter of 2012, the third quarter in a row to show a drop. "The majority of FDI in Ukraine recently does not represent new investments, but rather the support of existing business by foreign owners," comments ING analyst Alexander Pecherytsyn. And most of those existing businesses are simply the moribund subsidiaries of European banks being recapitalised in the face of swelling bad loans. While the fast food chains and multinational consumer goods companies are racing to set up shop in Russia with tens of billions of dollars of investments in the last two years alone, even the most adventurous leading world brands like Ikea and Starbucks have yet to set up shop in Ukraine.
And even the one sector that should benefit most directly from the Euro 2012, tourism, looks set to for collateral damage from the image wars.
Ukraine does not currently figure on European tourism's radar screen, but the Black Sea country has famously rich potential appreciated by its eastern neighbours for centuries. Sports events can be a game-changer for national image and tourism - witness Germany's 2006 World Cup turning the "grey" country into a hip party destination, and the Chinese Olympics and South African World Cup doing PR miracles for their respective host countries as great places to visit.
Image gains from the world's fourth largest sports event should be a no-brainer, but it looks like the opposite will come true: since Ukraine is co-hosting with Poland, international media are gearing up to milk Poland for the feel-good vibe they need from the games, while tapping a salacious vein of bad news from Ukraine and hanging it on the Tymoshenko peg.
Before the games have even started, the "Poland good, Ukraine bad" story has written Ukraine off as a country you don't want to go to - the British press in particular having a field day with neo-nazis waiting to skin you, gloating HIV-positive hookers and extortionate hoteliers. "Anarchy in the Ukraine," screamed the headlines in the UK's Sun tabloid, the country's largest circulation paper. "Unlike the tourists, the journalists will come," blogs veteran US Ukraine watcher and scholar Alexander Motyl. "But the games will not be a story - unless the Ukrainian team manages to pull off an upset victory. Ukraine's descent into authoritarianism, rampant Regionnaire corruption, Tymoshenko's imprisonment, violence against women, Yanukovych's palatial lifestyle, the sex industry and many other dark sides of life in 'Yanukostan' will be."
The big questions are why Yanukovych has risked this fallout with Europe and is there anything that can save Ukraine's Euro 2012 from falling apart.
The answer to the first question is, as usual for most Ukraine-related matters, natural gas. The option of integrating with Europe for Yanukovych and his cronies is simply a card to play in negotiations with the Kremlin over the price for Russia's gas so crucial to its economy. Imprisoning Tymoshenko for signing the 2009 gas deal that Ukraine desperately wants to revise is an even better card, while neatly also removing the most potent opposition politician from the stage.
And what could save Ukraine's Euro 2012? Apart from a surprisingly brilliant performance from Ukraine's national team, perhaps the fact that when people do get to Ukraine - and with Germany, England and France all due to play in Ukraine, the fans will potentially number in the hundreds of thousands - they will find it a surprisingly pleasant and livable place in summer.
But even here Ukraine has shot it itself in the tourism foot. With preparations for the tournament plunged into chaos during the country's economic collapse 2008-2009, two of the four competition venues went to towns in the far-flung east of the country - Kharkiv and mining town Donetsk, Yanukovych's home town, where slag heaps count as tourist attractions. At the same time, Ukraine managed to completely exclude the world-famous 18th century Black Sea mecca of Odesa, "St Petersburg on the Black Sea", a tourism pearl in close proximity to the beach resorts of Crimea.
Ukraine it seems has once again shown its unenviable talent for dragging defeat from the jaws of victory.
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