Ukraine has been out of the headlines in the last week, toppled by Malaysia Airlines Flight 370. But after this weekend, Ukraine will be back on top of the news, following the Crimean referendum. Its not going to be pretty for Ukraine and the question everyone will be asking is – how did it get this far? Well, I say football is to blame. This is my version of what happened.
Suppose you have a house. Its a nice house, a big one, that you have inherited from your parents. But it’s an old house, with plenty of problems – the roof is leaking, insulation is non-existent, some windows are broken and the piping is rotten. Your house needs a total overhaul to be restored to its former glory. The problem is – you have just lost your job, your wife is sick and the children need money for new school books, so you’re not exactly swimming in cash.
What would you do? You do have an asset – your house. So a reasonable option would be to take a loan with the property as guarantee, to last you through the tough times and make the repairs before the roof caves in on you. This way, you will have a solid home, your children will benefit from good education, your wife will go to a good doctor and if all goes well, with the new job you will repay the small loan you took and get your family back on your feet.
There is, of course, another option. Mortgage your whole house and spend all the money you get on a huge one-time party, making only cosmetic repairs, so that the roof doesn’t leak into the champagne and caviar you serve your guests. Invite everyone – the boss who fired you, the contractor who “fixed” the leaking roof the last time, hell, invite all your old girlfriends, too – show them how successful you’ve become in life. Who cares that the party will be over and leave you with a huge hangover, a ruined house and a loan you can’t repay? Sell your grandma’s jewelry, too, while you’re at it – no expenses can be spared for a good party!
Unfortunately, the last option is what Ukraine has done when hosting the Euro 2012. Various reports say that the tournament has cost Ukraine 10 to 14 bn USD – four to six times the original estimate! What’s even worse, half the money wasn’t event spent on unnecessary infrastructure like lavish football stadiums – it was just stolen. Who remembers now that Ukrainian media seriously claimed that Ukraine’s road to the EU will start at Euro 2012?
Football alone was not the cause of the downfall of Ukraine. The financial crisis and widespread corruption have hit Ukrainian economy hard, eventually leading to the ousting of the government of Viktor Yanukovych (and a Russian invasion). But hosting the Euro 2012 tournament has undoubtedly made the problems worse.
Ukraine’s woes must be a warning sign to other “emerging” countries that waste their assets on prestige projects. I’m talking to you, Russia and Brazil – chopping the fruit garden around your house and selling your winter coal stock to finance an even bigger party won’t make it better.
The conclusion is obvious – hosting huge events like FIFA World Cups and Olympic Games is possible only when you already have the money, the infrastructure and the judicial system that can cope with such huge money flows. Otherwise, you will be left with a herd of white elephants and a huge debt millstone hanging around your neck, like Ukraine, or Greece. And the last word about the burden of Beijing 2008 Olympics on China’s economy has not been said yet, I’m afraid.