Turkey continues to generate considerable scrutiny across world today. There is no sign that the nation’s afflictions will ease anytime soon. The currency crisis continues on with the lira having lost almost 40 percent of its value against the US dollar so far this year. Turkey’s relationship with the United States is spiraling downward nearly as fast as the lira, spurring geopolitical, diplomatic, and economic fallout at home and abroad. Ankara’s push to end the lira’s downfall has brought no tangible results yet, and there is considerable doubt forming about Turkish President Recep Tayyip Erdogan’s ability to navigate the Turkish economy through this difficult time.
Europe is watching events in Turkey closely, especially Berlin. Germany’s Federal Ministry of Finance has identified Turkey’s ongoing economic difficulties as a risk to the German economy. On the heels of this, German Chancellor Angela Merkel has stated she sees no need to offer Turkey financial aid in the midst of this currency crisis. Merkel and Erdogan are expected to meet in September when the Turkish leader makes a state visit to Germany. Much like the United States, Germany has seen its relations with Turkey grow strained since the failed coup against Erdogan in 2016.
Events of the last twenty-four hours reinforce the belief that there is no end to Turkey’s woes in sight. Earlier today, the US embassy in Ankara came under gunfire for a brief period. The identity of the attackers remains unknown, though the Turkish government was quick to condemn the incident. Pre-recorded remarks by Erdogan were also released today to mark the beginning of the Eid al-Adha Muslim holiday. The Turkish president promised his people they would not be brought “to their knees” by the currency crisis. He also described the crisis as an attack on the Turkish economy and likened it to an attack on the national flag, and call to prayer. Language such as this will do nothing to alleviate Turkey’s troubles, and in the long run will only serve to deteriorate things even more.
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.