On Friday the Turkish lira fell to its lowest level on protracted concern about geopolitical and economic factors that have been steering Turkish policy decisions of late. The lira dropped 17% against the US dollar, prolonging a slide that has attracted the attention of global markets. Throughout the day, a growing number of media outlets placed blame for the lira freefall on President Trump’s announcement of increased metal tariffs on Turkey, and the deteriorating relationship between Ankara, and Washington. This on-the-fly analysis fails to take into consideration the role Turkish President Erdogan’s unconventional economic policies have played. After the president won re-election in June, he assured the Turkish populace that his newly acquired near-absolute executive power would enable him to repair Turkey’s faltering economy. Unfortunately for Erdogan, he failed to make good on his promise, and the economy continues to backslide.
Turkey’s geopolitical situation brings additional uneasiness. The continuing rift with the United States is only exacerbating Erdogan’s economic problems, and highlighting the economic vulnerabilities that have built up during his time in power. Trump was entirely correct when he said US-Turkish relations are ‘Not good at this time.’ In fact, this is something of an understatement. The US-Turkish relationship has been souring for a long period of time, and the current tensions show no sign of easing.
Also on Friday, Turkish Treasury and Finance Minister Berat Albayrak unveiled the nation’s new economic policy to the world. He said Turkey will be undertaking major cost-cutting steps in the public sector, and the government is moving to secure 35 billion lira (roughly $5 Billion at the moment) through increased revenue and savings. He also said Turkey will be shifting to a more efficient model for funding mega-projects, however, he did not elaborate further.
Unfortunately, Albayrak’s presentation appears to have done little to allay fears in Europe. The ECB (European Central Bank) is examining the exposure of European banks to Turkey. Bank shares fell when word of this became public. Talk of a possible Turkish bail out at some point in the future was also heard today, though the likelihood of Turkey becoming the next Greece is remote for now. Still, a Turkish bailout scenario is frightening to say the least, and could very well lead to the permanent breakup of the European Union.