The Euro Crisis: A view from Ankara
ANKARA -- As the Euro crisis continues despite the historic Greek bailout package EU members, particularly those that are in the Euro-zone are face to face with fiscal deficits and public debt alongside strong deflationary pressures. The limits of the downturn are not known yet and even the fate of Euro is doubtful for the first time since the single currency was launched. Turkey is neither member of the Eurozone nor the EU, and not the "sick man of Europe" any more, but it is not immune from this crisis either. Although Turkey is not a full member, Turkey has a customs union agreement with the EU and roughly 50 % of Turkish exports are made to the EU single market. The expected decline of Turkish exports to the single market will hit Turkey's growth rate at a time when it was trying to heal the wounds of the global economic crisis. Although Turkey survived the global crisis with little financial damage, its GDP shrank by 4.7 % in 2009 shooting unemployment rate up to 15 %. Turkey was expected to grow by around 5 % in 2010 and bring down unemployment. With the new situation in Europe, these expectations will need to be toned down. Energy, raw materials and intermediate products are significant inputs for Turkish exports. While Turkey makes most of its exports in Euros, USD is the currency that dominates Turkish imports. This means that the devaluation of the Euro against USD will diminish the profit margins of Turkish exporters leading to deterioration in Turkey's trade balance and current accounts balance. A Europe in crisis is less appealing for Turkish citizens and domestic support for EU accession can be expected to weaken in Turkey. As the EU accession process has been the main driver of democratization in Turkey for more than 10 years, the reform process can be expected to further slow down unless there are new internal dynamics. On the other hand, citizens of the EU weary from the economic crisis will be even less willing to admit new members into the club. Unless there is strong political will in Turkey and in Europe, Turkey's EU accession process will come to a practical standstill with serious domestic and foreign policy implications for Turkey. Speaking of foreign policy, Turkey's orientation towards its neighborhood can be expected to strengthen after the Euro crisis. While around 50 % of Turkish exports are made to the EU single market roughly 25 % is made to Turkey's neighbors (excluding countries in Turkey's neighborhood without a common land or sea border) with an increase of more than 280 % during the period 2003-2008. The European crisis will make Turkey's economic cooperation with neighbors even more important with implications for foreign policy although some of these have serious conflicts with Turkey's Western allies. A Greece in crisis and one that has triggered the Euro crisis can be expected to be more cooperative with Turkey and less energetic when it comes to blocking Turkey on various issues at the European level. Turkey can use this situation as an opportunity to solve its conflicts with this country, however such an outcome will require strong political will at a time when Turkey is approaching a referendum and parliamentary elections. The referendum about a constitutional amendment package will be held in September 2010 and parliamentary elections will normally be held in July 2011 unless there are early elections. With elections on the horizon at a time of economic difficulties, public opinion will play a bigger role in all issues including tough issues like the Cyprus problem, rapprochement with Armenia and the Kurdish opening which doesn't strentghten the Turkish government's hand. As an important transatlantic partner, Turkey is not immune from the Euro crisis. This crisis will have strong implications for Turkey at a time when it is under transformation on both the domestic and foreign policy fronts. These are times when solidarity is needed more than ever in Europe and pro-Western Turks will keep looking towards Europe for solidarity.
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