Turkey’s stock market has lost 17% in Euro terms since its late-August high point, courtesy of Turkish President Recep Tayyip Erdogan overplaying his hand with Western allies.
The crisis in US-Turkish relations had been building for weeks, but became an open rupture when the US State Department suspended visa approvals for Turkish citizens traveling to the United States after Turkish police arrested a Turkish employee of the American embassy at Ankara for alleged participation in last summer’s coup attempt. The US denounced the arrest and dismissed the charges as “wholly without merit,” suspending visa approvals, and the Turkish government reciprocated with a similar ban.
Turkey’s diplomatic turn towards Iran and Russia is the driver in the diplomatic crisis, although Western countries have long rankled at Erdogan’s brash assertion of Turkish power. Erdogan has made common cause with Iran against the attempt by Iraqi Kurds to form their own state, as Asia Times first reported on June 27.
In early September, US federal prosecutors charged top Turkish bank executives and a former Turkish economics minister with laundering hundreds of millions of dollars for Iran. The Erdogan government denounced the US and defended its bankers, who include top executives of Halk Bankasi, one of the country’s largest banks. Asia Times’ financial blog Asia Unhedged warned on September 8 that “Erdogan may have stretched his neck out too far this time.”
That is a sharp turnaround from last January, when Washington as well as Moscow wanted Erdogan to succeed. The incoming Trump Administration hoped that a Russian-American deal would stabilize Syria, and that Turkey would act as a counterweight to Iranian ambitions inside Syria. Washington wanted Turkey to remain inside NATO; the Europeans wanted Erdogan to staunch the flow of refugees (which he had backhandedly encouraged in 2015); and the Russians wanted his help in neutralizing Sunni jihadists, whom Erdogan had helped off and on. China wanted Turkey to be the western terminus of its Belt and Road infrastructure project.
“The collapse of the lira isn’t just a psychological problem for Erdogan. On the contrary, the whole Turkish economy will come under pressure as a result”
This benign geopolitical backdrop supported the Turkish stock market, which until August 30 was the world’s top performer, up 50% in dollar terms since its January 2017 low point. Erdogan overplayed his hand badly, however. Turkey announced that it would purchase Russia’s S-400 air defense system, a slap in the face to NATO, whose southeastern flank Turkey had guarded since the beginning of the Cold War. His open alliance with Iran, moreover, destroyed Washington’s hope of establishing a balance of power in Syria. The Syrian Kurds had been the most effective fighting force against Sunni jihadists, and Erdogan now threatens to use the Turkish armed forces against the Kurds. That gives Iran a free hand to expand its military presence in Syria, including the construction of a military airfield near Damascus, according to Israeli press reports.
Erdogan’s dalliance with Iran wrong-footed Washington’s efforts in Syria, and it is not surprising that the first rupture in American-Turkish relations came over Turkey’s covert financial help for Tehran.
Erdogan now finds himself without friends in the West. Turkey has jailed twelve Germans of Turkish descent for alleged involvement in the July 2016 coup attempt, over the strenuous protests of the Berlin government.
Now, Erdogan is getting his “payback,” Holger Zschäpitz writes in the Berlin daily Die Welt. “The collapse of the lira isn’t just a psychological problem for Erdogan. On the contrary, the whole Turkish economy will come under pressure as a result.” Turkish companies have nearly US$300 billion in loans denominated in foreign currency, according to central bank data, equal to about a third of total GDP. The interest burden on these loans rises as the value of the Turkish currency falls. Turkish inflation already is running in double digits.
Even worse, Turkey is dependent on so-called “carry trade” investments of short-term money seeking high interest rates in Turkish assets, which pay more than 10% interest. Investors who reached for high Turkish yields got burned during the past month as the Turkish lira collapsed. Turkey’s current account deficit is running at 4% of GDP, and its currency remains vulnerable to further decline.
"In early September, US federal prosecutors charged top Turkish bank executives and a former Turkish economics minister with laundering hundreds of millions of dollars for Iran."
David, Wall Street and The City are well known for laundering billions from anything that stinks, like they control the drugs business and NATO is in Afghanistan for the opium ( production increased 25 times since 9/11…).
Yes, probably few love "zig-zag" Erdogan, but certainly nobody likes the western "prosecutors" and their humanitarian financial and real massacres…
So, like it or not, the real winners are in the real civilized world: Beijing, Moscow, Teheran, Damascus.
turkey is strong enough to resist,challenges,erdogan played it right,turkey has allways been loyal to the west,the question is all asian countries no longer trust the west..the arab spring has scared the hell out of the gulf royals,,russia has lost faith after ukraine..if the west loses turkey..the west has lost all options in the geopolitical game.the west needs turkey more than ever..while the arab spring was right the coup was wrong..the independence for the kurds..is a wrong move at a time when the mideast is in a mess..a kurdish state can only be viable in a wider peace environment..you cannot create chaos frmom caos..the kurds are being sellfish..should wait longer..when the time is right..h
Nobody knows what is really going on———-Turkey had switched sides so many times that the TRUTH is stranger then fiction. One thing is for sure———FAKE NEWS got the lead on this bubbling crisis———-who are the serfs to believe???
Barzani clan = Mossad
Kevin, as long as you don’t trust the Anglo/Jews, you might have a chance to find a bit of truth elsewhere…
Dave, glad you noticed and it is fun to read the dissenters, here. I often wonder what color the sky is where they live.
Erdogan is getting a taste of what it’s like when the thugs you are in bed with throws a fit.
George Pugh, if the color of the sky is your limit, sorry but you are really limited and you must be living a miserable life in a really miserable place. Is that place your limited mind ?
Luca Taramelli come on! I rather liked your first comment, but this conspiracy theory smells. True, the Western press is addict to fake news, but voltaire is not above suspicion either. Turkey is in a mess. It has supported anti-Assad terrorists in Syria (against an earlier and saner policy of no problem with Turkey’s neighbors). Later it switched alliances, and began fighting against them. But it also fights with Kurds, who, in Syria, after the Syrian army, are the strongest enemies of the islamists. In Iraq Turkey was Barzani’s ally until Barzani declared Kurdistan independent. Erdogan threatens to cut off its lifeline by shutting off the oleoducts that runs through Turkey, but does not do it, probably because his own family profits from the sale of Kurdish oil. WIth Germany it was on the right side, because Merkel had no business preventing Turkish politicians speaking to Turks in Germany, but had gone overboard with the arrest of a German journalist. Finally, the USA has a long experience in subverting democratic governments and killing foreign leaders. If I were Erdogan I would be very worried.
It’s about time the self-styled sultan got.a taste of his come-upance.
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