This is the sort of thing that happens in Mel Brooks movies, but not–at least until now–in geopolitics: Turkey’s claim upon the support of Western Europe comes from its own propensity to collapse. If it does so, the Europeans fear, the refugee stream that inundated Europe during 2015 will acquire another zero. That is why West Germany is willing to humiliate itself in order to prop up the regime of Turkey President Recep Tayyip Erdogan. Europe is paying Erdogan to stop the flow of refugees, which Erdogan has threatened to accelerate if his demands are not met. Erdogan’s negotiating stance recalls Brooks’ 1974 comedy “Blazing Saddles,” where a black sheriff turns back a lynch mob by putting a gun to his own head and threatening to pull the trigger.
Chancellor Angela Merkel April 23 supported Turkey’s long-standing demand for a “safe zone” under Turkish control on the Syrian side of its joint border, ostensibly to protect refugees but in fact to protect beleaguered Sunni jihadists whom Turkey has supported against Syria’s Assad regime. Turkey is alarmed that Russian combat troops are fighting along side Kurdish forces on the Syrian side of its borders, raising the possibility that the Kurds will gain control of a strip of land stretching from the Kurdish autonomous zone in northern Iraq to the Mediterranean Sea. Kurdish is the first language of a fifth of Turkey’s citizens, and Kurdish fertility is double that of the rest of Turkey, so that ethnic Kurds will comprise half the country’s young people a generation from now.
Mrs. Merkel’s belated support for Turkey’s “safe zone” has no practical impact, to be sure. The United States has armed the Iraqi and Syrian Kurds, who are the only indigenous force that has fought effectively against ISIS. Germany itself has 125 advisors in Iraqi Kurdistan training the Kurdish Peshmerga militia and has given the Kurds light arms. Russia and its allies control too much territory on the Syrian-Turkish border. And the creation of a “safe zone” would require control of the local skies, which Russia now dominates with the deployment of its extremely effective S-400 air defense system. NATO forces never have engaged the S-400, and do not want to find out how good it is by risking military aircraft. Turkey’s air force is effectively shut out of the Syrian skies.
There is nothing the Germans can do on the ground to advance Ankara’s demands, so the German Chancellor’s support for Turkey’s position falls into the category of ritual humiliation. That is the second such humiliation Berlin has accepted recently. The German government last week caved in to Turkish demands for criminal proceedings against a German comedian who mocked Erdogan, under an obscure and never-before-used law forbidding public insults to foreign heads of state.
Germany is committed to what it imagines to be a humanitarian posture, namely kindness to the migrants whom Turkey allowed to reach its doorstep. If the refugees do not reach its doorstep, but remain in camps in Turkey, the Germans do not feel the same compulsion to prove their compassion. Merkel is depending on Erdogan to keep the migrant flood from reaching Europe. Emboldened, Erdogan told an audience of municipal leaders April 19 that “The European Union needs Turkey more than Turkey needs the European Union.”
Erdogan is quite wrong, in fact: Turkey desperately requires loans from Western Europe in order to support the consumer-lending bubble that has propped up its economy and Erdogan’s government during the past several years. There is evidence that Europe stepped up lending to Turkey during the second half of 2015 just as the migrant crisis erupted. The chart below from just-released Bank for International Settlmeents data shows the biggest jump on record of foreign loans to Turkey during 2015, led by loans from Eurozone banks.
Turkey’s economy appears to defy gravity: with annualized GDP growth of 5.7%, it is the emerging market that has held up best under stressed global economic conditions. That is entirely due to the growth of domestic consumption; Turkish exports are flat despite the sharp devaluation of the country’s currency. And domestic consumption depends on a flood of high-interest consumer loans.
According to the Turkish central bank, consumer debt is now almost equal to total personal income in Turkey, vs. a bit over 20% in the United States. The average interest rate on consumer debt, the central bank reports, is just under 17%.
That means Turks pay about 14% of their personal income as debt service, compared to about 5% a decade ago (in America, by contrast, debt service is just 10% of disposable income, which is less than personal income — vs. 14% in 2007 just before the crash).
The collapse of the oil price has reduced the cost of Turkey’s imports, which have fallen by 8% year on year. That should have led to a decline in the country’s external borrowing. Instead, external borrowing according to the BIS data jumped by more than 20% during the past year. It is hard to reproduce the BIS numbers (which are likely to be very accurate) from the foreign borrowing data provided by the Turkey central bank.
Turkish banks finance their balance sheet on global capital markets, which the rating service Moody’s thinks risky. In an April 9 report, Moody’s warned, “The Turkish banking sector’s dependency on external wholesale markets could contribute to higher funding costs in light of a weaker international investor confidence. Banks also face challenges from a slower economic growth, increasing dollarization of liabilities and volatile sentiment towards emerging markets, all of which keeps the banking system on a negative outlook.”
Moody’s may be looking at the wrong problem: too many countries have a stake in Turkey’s stability to allow a banking crisis to develop. The Gulf states appear to have financed Turkey during 2013-2014, when the country ran an enormous current account deficit. The Europeans will continue to finance Turkey for the time being. Bank balance sheets are fragile, but there is a political motivation to keep the banks funded. Turkish consumers have a different kind of problem: debt service consumes so much of their income that they cannot continue their present level of purchases much longer.
Turkey’s financial bubble will pop eventually, despite the best efforts of its funders to postpone the problem. In the meantime, enabling Ankara ensures continued instability in the region, more humanitarian crises and more refugees.
The only viable long-term solution to the confessional and ethnic conflicts which have made the Levant look like Europe during the Thirty Years War is devolution. Artificial nation-states based on an internal balance of ethnic or religious power have collapsed, and the only efficient way to stop the killing is to use the model of the former Yugoslavia: break up multi-ethnic states into enclaves that protect ethnic and religious minorities. The trouble is that the Kurds would form the most viable of such mini-states, and Turkey will do anything in its power, fair or foul, to prevent that from happening.
In order to postpone the creation of a Kurdish state (which demographics make inevitable within one generation), Turkey has supported the ISIS and other Sunni jihadist elements who have destroyed the ancient Christian communities of Iraq and Syria, among other atrocities. Russia has found an opportunity to insert itself into the conflict as an ally of the Assad regime opposing Turkey, and is trying to position itself as the godfather of an emerging Kurdish state. Turkey is willing to unleash chaos in its perceived national interest, and Russia is happy to add to the chaos in order to gain leverage. Erdogan’s reluctant friends in European capitals are only making the situation worse.
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