INSIGHT-City on the edge holds key to Ukraine future
* Yanukovich home town stunned, defensive of local interests
* As Ukraine emerges from Soviet past, oligarchs have power
* Proud industrial city key to stability as election nears
* Hub for Russian-speaking east sees Crimea-style separatism
* Elite, voters may be rallying behind new Kiev consensus
DONETSK, Ukraine, March 28 (Reuters) - Lenin looks out on Donetsk, unmoved, anthracite grey and steely eyed. But a century after his revolution, this Ukrainian industrial city of Porsches and poverty seethes around him.
It is torn between its Soviet past, a corrupt and unhappy present and a future somewhere between Russia and the West.
Below his plinth on Lenin Square, protesters bemoan the fall of a local boy made good, president Viktor Yanukovich. Some hope Russia may do for the Donbass coalfield what it did in Crimea - claim Russian-speaking borderlands for Moscow, bringing higher pensions, wages and a return to a Soviet comfort zone.
But the Bolshevik leader stands today in the shadow cast by a new glass tower where Ukraine's richest man, miner's son Rinat Akhmetov, runs a $12-billion business empire and ponders his next move following the overthrow of former ally Yanukovich as leader of a country ranked as the most corrupt in Europe.
Lenin's chiselled words praise the region's role in "building socialism". But along the city's main artery, sports cars roar past luxury stores, and the occasional beggar, along the route from an ageing steelworks to the space-age stadium that houses the multinational squad of Akhmetov's soccer team, FC Shakhtar.
Many locals, in a region where monthly pay averages less than $400, curse him and his ilk as parasites and crooks.
Yet he is "more popular than we can imagine", one Western diplomat said. German Foreign Minister Frank-Walter Steinmeier called Akhmetov a man "whose word counts round here" and left their meeting last week saying the businessman would help stifle separatism and support liberal reforms.
After 23 years of independence, the paradoxes and interplay of money and politics in Ukraine, of corruption and democracy, of ties to Russia and the West, of a national history marked by regional and linguistic rivalries, are nowhere more evident than in this city of a million and its region, home to one Ukrainian in 10 and producing a fifth of the country's industrial output.
How Donetsk and the wider Don basin respond to the collapse of Yanukovich's hold on national power and his flight to Russia from pro-Western protesters in distant Kiev will help determine whether the Ukrainian state holds together and whether it may finally offer most of its people prosperity and the rule of law.
An election on May 25 to replace Yanukovich - all candidates should be known next week - may confirm Ukraine on the course set by its interim government, of ties to the European Union and IMF-prescribed market reforms, after the ousted leader triggered his downfall by shunning an EU deal in favour of Russian aid.
Founded by a 19th-century Welsh engineer called Hughes who called it Yuzovka after himself, renamed Stalino as it drove the industrialisation of the Soviet Union, today's Donetsk can shape the next stage of Ukraine's slow emergence from totalitarian rule in the fraught space between Russia and the European Union.
PARADOX AND CONTRAST
Stand on Lenin Square, though, among the Russian tricolours and Soviet red flags, and the utter confusion of emotions unleashed by last month's bloody events in the capital is clear.
Denouncing wage cuts and the power of oligarchs who made fortunes in the murky years after the Soviet collapse in 1991, a permanent protest picket calls for the return of the ousted president. Yet Yanukovich's 2010 election campaign was funded by Akhmetov and the president oversaw four years of stagnation as his own family became, by repute, among the country's richest.
"He's not the worst of them," said pensioner Valentina Petrovna in justifying her support for the fallen leader during a rally by 3,000 people on Lenin Square last weekend.
Voicing indignation that the opulence of Yanukovich's home had been exposed to public scorn, she said the same treatment should be accorded other politicians - notably arch-rival Yulia Tymoshenko and other enormously wealthy presidential contenders.
"You have to have money to run for president," she shrugged when asked if she might prefer a leader not from the super-rich.
Alexander Bukalov, a civil rights activist, said many in eastern Ukraine had got used to following strong leaders: "The oligarchs are powerful because it doesn't offend people," he said. "Yanukovich has left a void. Who will protect them now?"
At the same time, he said, anger on the streets reflected a mix of frustrations among different groups of people all boiling over at once - with living standards, with seemingly deadlocked politics in Kiev and with two decades of post-Soviet corruption.
Support for Yanukovich, who four years ago swept the heavily populated east to defeat Tymoshenko for the presidency, is now a minority view, even in Donetsk, where he rose from delinquent youth to governor. A poll early this month showed two thirds of people in eastern Ukraine approved of his removal.
But if his downfall is little mourned, the aftermath of his overthrow at the hands of a protest movement spearheaded by club-wielding ultranationalists who battled with riot police has thrown divisions between Ukraine's east and west into relief.
"We were all against Yanukovich," said Albert, a former policeman in Donetsk who now runs a small tourism business. "He was our plague. But the fascists and those people in the west have exploited the situation and now they're coming for us."
That fear, reinforced by coverage on widely watched Russian state television, helped drive Crimeans to embrace annexation by President Vladimir Putin and calls in the east to seek Moscow's protection from moves against the Russian language and toward free trade with the EU that could hurt eastern industry.
"The Americans paid the fascists," said a woman in a pink Italian puffer jacket as she juggled a pro-Yanukovich banner, a cup of McDonald's coffee and her "Donbass Communist" newspaper.
"People in Kiev just want our money and don't want to work."
A poll showed over half of easterners viewed the government in Kiev as illegitimate, compared to 10 percent in the west.
A month ago, separatists briefly took over the Donetsk governor's office, raising the Russian flag. The regional assembly voted to hold a Crimea-style referendum on autonomy.
A Ukrainian nationalist was stabbed to death two weeks ago in a clash with anti-Kiev protesters on Lenin Square. But since then, despite Western warnings of Russian troops massing on Ukraine's eastern borders, tension has eased. Moscow denies having ambitions to take territory beyond Crimea.
Serhiy Taruta, the steel magnate named regional governor, has swept suspected separatist sympathisers from key posts in the police and other services and tightened frontier controls to keep out "political tourists" - Moscow agents.
Assurances from the Western-backed Kiev government of rights to use Russian in official contacts may ease concerns of people in the east, for most of whom Russia is the first language, even among the region's 57-percent ethnic Ukrainian majority.
Some activists in western Ukraine, where historic Austrian rather than Russian rule fostered a national identity around the Ukrainian language, have wanted to bind the new state together by suppressing Russian in favour of their related Slavic tongue.
As important, however, in keeping the east loyal to Kiev may be promises of decentralisation, giving people - and their oligarch leaders - more control of local resources, as well as possibly security and judicial processes.
Unlike in Crimea, where enthusiasm for Russian citizenship was widespread, few people in Donetsk express a strong desire to be ruled by Moscow. Instead they want more say over local affairs, especially now the Donetsk clan round Yanukovich no longer holds sway in Kiev.
"We don't want to be like Crimea. But we want a lot of autonomy," said Denis Alexandrovich, 37, a Russian language teacher standing under Lenin's statue. "I love Russia. I have family in Russia," he said. "But I want to live in Ukraine.
"This is where my grandparents' graves are."
The regional flag of Donetsk, a sun in the blue and yellow of Ukraine rising over a black sea, flies over demonstrations. Since Soviet days, the main avenue has been named for the leader of the short-lived Donetsk Republic of 1918. Pride in the local work ethic is fierce; it was here Soviet propagandists found the miner Stakhanov and made "stakhanovite" a byword for hard toil.
At the Donetsk State University of Management, where 19-year-old Rita and other students played down ethnic tensions and spoke of high hopes for founding their own businesses, unease at events in Kiev also revolved around concerns for the economy:
"We're not like Kiev. People here work and only protest at weekends," said staff member Yelena Yudina, 36.
Donetsk oligarchs harness such local particularism. Akhmetov and Taruta own the city's two big soccer clubs, whose names mean Miner and Steelman respectively. Business magnates support local philanthropic causes and trumpet investment in the area, even if they also make headlines abroad, as Akhmetov did in 2011 when he paid over $200 million for the most expensive home in London.
Taruta says he has no doubt billionaires can lead a fair and democratic society and talks of curbing corruption to get investors "lining up" to put money into Donetsk.
At the Donetsk Steel Works, DMZ, near the centre of a city dotted with pit winding gear and slag heaps, workers coming off shift as the hooter blew agreed their main hope was for investment - and an end to political upheaval.
An EU diplomat, advocating Western economic aid to the east, said: "No one is keen for annexation by Russia if the local economic situation is all right."
Foreign investment may please the Donbass oligarchs but, for all that Western powers seem ready to prop up Ukraine against Russia, cash may come at a price of some reform in a system that has left Ukraine the most corrupt country in Europe, on a par with Nigeria in the Transparency International rankings.
Pledges of a clean-up from a political elite formed by the very people who benefited from that system may sound hollow. Donetsk governor Taruta acknowledges there is a record of broken promises but said now was different.
Some analysts argue the scare over Russian expansion and bloodshed on the streets may galvanise the elite into backing anti-graft, open-market reforms to stabilise Ukraine.
A typical oligarch "has already made his fortune, by whatever means, the Western diplomat said. "Now he needs rules and a fight against corruption to keep what he has safe."
For human rights activist Bukalov, the ordinary Ukrainian in the east may also be developing a "political maturity" after the initial shock at the fall of Yanukovich's Donetsk "Family".
Describing the protests against Yanukovich on Kiev's Maidan square as "for values, for freedom and respect" in contrast to counter-demonstrations in Donetsk as "all about wages", Bukalov said time, and the loss of Crimea, had given easterners a chance to consider the benefits of sharing in a new start in Kiev.
"Donetsk people are starting to think," he said. "Yanukovich did more for democracy in Ukraine than anyone else. In opposing him, Ukrainians have learned to stand up for themselves."
But a positive scenario after the past month's drama, in which the east and west of the country rally behind a new, clean political and economic system, will not develop overnight.
On Lenin Square, a pensioner named Lyubov has heard too much fine talk before: "The oligarchs are there in their palaces and we work all our lives for nothing." (Additional reporting by Lina Kushch and Sabine Siebold; Editing by Giles Elgood)
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