mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Trouble In Turkey?

One of the world’s most important developing economies, “Europe’s BRIC” (according to David Cameron), and a rising political power not just in its neighborhood, but the world as well, might be heading for a fall. As the FT reports, Turkey could be in trouble:

Ankara’s current account deficit in absolute terms is the second biggest in the world. As only a small fraction is financed via foreign direct investments, the risk of financial shocks remains serious. With inflation closing in on 10 per cent, there is genuine cause to fear that the economy is overheating.

If 2011 was the year of cruising at altitude, then 2012 may be the one which witnesses a hard landing. The links between Ankara and the eurozone mean that Turkish exports are bound to be affected by Europe’s woes. Domestic demand is also slowing. While the government expects the economy to grow at 4 per cent next year, independent estimates predict this figure will be considerably lower.

There’s more. Prime Minister Erdogan, Turkey’s most popular leader since Atatürk, is sick: he had stomach surgery in November. His doctors assure us he will recover quickly, and that he does not have cancer. But the news kicked off a discussion on who will take Erdogan’s place when he steps down, whenever that is. No matter who  follows Erdogan, the new leader is unlikely to inherit Erdogan’s popularity.

Normally these risks (which should not be overstated: Turkey is no Greece) would be of more interest to the Turks and a handful of investors than to anyone else.  But Turkey’s new role in the Middle East is highly dependent on both prosperity and stability at home.  A serious recession in Turkey or a change in leadership would have much wider regional implications than a few years ago; stay tuned.

Features Icon
show comments
  • Kris

    Spengler is shocked, shocked!

  • Greg Q

    Sorry, but that’s great news. The Islamists just got more power. There’s nothing better than seeing the country go “boom” right after that happens. Hopefully the populace will learn the proper lesson: power for Islamists = bad times for your country.

  • Cunctator

    Hardly anyone has been paying attention to the stats on Turkey’s “economic miracle” — the government has been spending wildly and keeping interest rates low to get votes from the poor. After all, the Islamist agenda must be advanced by whatever means.

    A serious recession in Turkey would not be bad for the region. It would burst the bubble that the AKP has created and, possibly, force Ankara to be a more positive and less aggressive player in the region.

    As to Erdogan, well, we can sympathise with him because he is ill; but we do not need to regret his early departure from the political stage. Will of Allah?!!!

  • Luke Lea

    That 10% inflation rate, if it doesn’t go higher, might be the answer not the problem. By depressing the exchange rate it should decrease the current account deficit. Assuming money wage rates don’t increase as fast it should reduce real wage rates, making Turkey more “competitive” in international trade. It would also increase government revenues as a percentage of GDP if Turkey has a progressive tax system, reducing annual deficits in real terms. And, of course, it should reduce the size of government debt in real terms no matter what.

    A sustained, moderate inflation has its downsides, of course, but the price might be worth it if there is no other way. The EU should take note. US too.

  • Luke Lea

    re: suggestion that inflation might be the answer, and not just for Turkey

    Here’s a nice link:

  • Jacksonian Libertarian

    There is also the serious damage Erdogan has done to the Military. Thousands of officers are under arrest or have resigned, and moral is in the toilet. (“The moral is to the material as 3 to 1” Napoleon) The officers that remain are politicals not soldiers and unlikely to have the respect or trust of their men.
    Which makes all the Sunni Islamic foreign policy moves by Erdogan, much less effective and threatening. Israel, Syria, and Iran will all thumb their nose at Turkey for the immediate future.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service