In a speech last Wednesday, Turkish President Recep Tayyip Erdoğan questioned the safety of European citizens in the wake of the escalating row between Turkey and the EU. On April 16, millions of Turks will go to the polls to vote on a package of constitutional reforms that will focus on placing yet more power in Erdoğan’s hands.
Opinion polls show Turkish voters are more or less equally divided on the issue, with 40 percent in favour of the reforms, 40 percent against them, and 20 percent yet to decide. Crucially, Erdoğan has won a lot of support among the Turkish diaspora in Germany and the Netherlands, with many undecided voters swinging in his favour after political tensions flared between Turkey and the two northern European states. In fact, in my opinion, the result of the referendum has already been decided in Erdoğan’s favour.
Based on a reform-orientated economic policy, Erdoğan has made Turkey as powerful and strong as anyone before him. Over the past decade, he has stabilised the budget, privatised a range of state bodies, dismantled heavy government bureaucracy, and made the Central Bank of Turkey independent. And what is the result of this progress? After 10 years under Erdoğan, Turkish economic output has risen fourfold. The figures show he is one of the most successful economic reformers in the world.
Last week, Moody’s downgraded Turkey’s credit rating from stable to negative
However, there are dark clouds on the horizon. The Turkish economy began to shrink in the third quarter of 2016, with the fourth quarter (figures are due at the end of this month) expected to follow suit. In the meantime, the number of tourists from Europe has fallen by about a third. The IMF estimates this has cost the country an entire percentage point of growth. Adding to the problem, unemployment and inflation are rising, and – since the failed coup last year – the value of the lira has fallen dramatically. Last week, Moody’s downgraded Turkey’s credit rating from stable to negative. And yet, in spite of these gloomy forecasts, many observers expect the Turkish economy to recover.
Infrastructure investments abound in the country, including a new airport in Istanbul, a third bridge over the Bosporus, and the Istanbul Canal, which is to connect the Black Sea with the Marmara Sea. In support of these developments, Erdoğan has been looking for new investors and strengthening economic ties with trading partners. He recently visited Qatar, Saudi Arabia, Bahrain, Russia and Pakistan. Moreover, he was visited by Jaber Al-Ahmad Al-Sabah, Emir of Kuwait, over efforts to boost bilateral cooperation in various domains. That said, new partners won’t be in a position to replace the EU and the US. In fact, more than a third of Turkish exports go to just six countries: Germany, the UK, Italy, the US, France and Spain.
Nonetheless, there is cause for optimism: Turkey’s central bank recently raised the key interest rate to rein in inflation. The bank said in a statement that it would maintain a “tight stance” until the inflation outlook showed “significant improvement”, according to Bloomberg. Such positive action is the only way to stop the lira’s decline, stop rising debt in the private sector, enable price stability, and enhance growth. Additionally, the government is increasing spending and rolling out tax breaks to boost growth. This is important for all parties in the recent dispute; no matter how hot things get, Europe needs Turkey, and Turkey is aware of the value of its economic interests in Europe. In my opinion, the conflict will gradually ease.
The Russia-Turkey crisis of 2015-16 is a good example of how common interests can overcome major events that threaten diplomatic relations. There is no reason to expect a different outcome in this instance – common sense will prevail.
Mourad Mekhail is a former Wall Street banker. He earned his Master of Business Administration in International Economies from Trier University, Germany. Since 2011, Mekhail has served as Advisor to the Board of Directors at Kuwait International Bank, following his previous assignment as Head of International Investment.