It is part of our DNA to look at Turkey without much commiseration when we see her in trouble. The Great Siege of 1565 is an integral part of Malta’s self-understanding as a nation.
As a Catholic country we are troubled to see Turkey’s Christians in retreat and alarmed about the rapid erosion of secularism. As democrats we worry about Erdogan’s blatant disregard for human rights, his disrespect of parliamentary opposition and the rule of law.
As retail investors though, we should be alarmed by the economic travails emanating from Turkey these days, posing a threat to Europe’s security, societal coherence and financial stability. The crash of the Turkish Lira, which in a very short time lost half its value, is damaging for Europe’s banks, for our savings and investments. It will be felt by our tourism industry too: it is very hard to offer sun, sea and sangria when Turkey is offering the same for half the price.
Recep Tayyip Erdogan’s rise to power was not only facilitated by flirting with the Kurds as long as he needed their votes; or cooperating with the Muslim-“Jesuit” movement of Fethulla Guelen, the US-based preacher and businessman with a large following in Turkey, with whom Erdogan fell out so spectacularly in 2013. Erdogan’s AKP party successfully enfranchised the poor and conservative-religious rural population, ever so suspicious of the high-flying urban middle classes. Yet he could never have done so without the enormous economic growth which his government initiated.
Infrastructure investment on a grand scale, fuelled by budget deficits and a massive inflow of foreign money, put the country on the fast lane, nowhere more visibly than in Istanbul, were ever more bridges over the Bosporus, the world’s biggest airport and shopping centres built by Erdogan’s cronies, transformed the city for ever.
What a coup for the ex-mayor of Istanbul, who had been as recently as 1998 imprisoned and banned for life from engaging in politics. The people who wanted to save the 2.5 million trees, which had to be felled for such mega-projects, or who stood up for the survival of Gesi Park, one of the last remaining greens in the city, were ridiculed or shot at.
Economic growth, linchpin of Erdogan’s lasting success, is what seems in danger now. These 15 years of ever growing dictatorial power have depleted the public arena of critical thinkers, opinionated experts, plurality of opinion and even-handed administrators. Sultan Erdogan, living in a newly-built palace that dwarfs Versailles, has surrounded himself now exclusively with yes-men, sycophants, cronies and family.
Nowhere is this more dangerous than in economic matters, where Erdogan, like many successful politicians, lacks even the most basic knowledge (He believes, for instance, that raising interest rates will fuel inflation, instead of curbing it).
The precipitous fall of the Turkish Lira – and Turkish share prices – was seemingly triggered by the fight over two priests: Fethulla Guelen, who the US refuses to hand over to Erdogan, and the Evangelical American priest Andrew Brunson, incarcerated since 2016 under trumped-up charges of espionage, terrorism and anti-governmental Christian propaganda.
At the beginning of this month both Erdogan and Trump made the two preachers their pet subject – ridiculously out of proportion and off the mark. Two Turkish ministers nominally responsible for the show-trial of Brunson were embargoed by the US administration, and new steel and aluminium tariffs were levied on Turkey, a close NATO ally and player in the Syrian war theatre.
Erdogan accuses Guelen of orchestrating the military coup that shook Turkey on July 15, 2016, which killed 300 people, bomb-damaged the parliament and the presidential palace (Erdogan is the all-powerful, newly-minted president of Turkey since 2014), and brought even fierce Erdogan opponents to the streets, fighting tanks and soldiers barefisted.
If these finance structures start to wobble once more, like they did in 2008, there will be no money to bail them out
The botched, hapless coup was used to great advantage by Erdogan, arresting 3,000 independent judges, rounding up all critical journalists, teachers, military personal, firing 160,000 people on the spot and arresting a further 50,000 without even fig-leaf evidence. The coup was not a “self-coup” as many have claimed, but its aftermath was clearly well prepared. Black lists must have long been in the waiting. Nevertheless, it was a coup.
The US judiciary, still admirably independent despite many ominous and fateful court nominations by the Trump administration, is so far refusing to extradite Guelen. This must look in the eyes of a dictator with scant respect for the rule of law like treacherous back stabbing.
Andrew Brunson, on the other hand, is neither rich, nor influential, like Guelen. His Church of the Resurrection, which he founded with missionary zeal more than 20 years ago in Turkey, had never more than 25 followers. His message – “God is shaking the Earth” – did not catch on in a Muslim country, and it is hard to understand how he and his family of five could ever make a living on basis of such failure.
What must have first puzzled Erdogan, to then cause fits of rage, was the ostentatious show of Christian values put on by the US administration: Mike Pence, Vice President of the US, and Secretary of State Mike Pompeo prayed for Brunson, and presidential tweets called him “a fine gentleman and Christian leader in the US”.
Pence and Pompeo are both evangelists, and the Foreign Secretary is former head of the CIA. Not much paranoia needed to smell a conspiracy, or at least an anti-Muslim culture war.
Politically, this is advantageous for Erdogan, who can convincingly propagate a siege narrative, where the infidels and their bond markets go on an unholy crusade. But even more of an advantage for Trump and his mid-term elections, which he is at risk of losing in both House and Senate. The religious right constitutes his core electorate, which is already enthused by Pompeo and Pence, Trump’s Supreme Court candidates and the recent move of the US embassy to Jerusalem.
Trump, who was three million votes short of Hillary Clinton and only won due to the peculiarities of the US voting system, needs Brunson the US martyr. The chances of either Trump or Erdogan handing over their priest are slim.
The Trump crusade against Turkey, painful as it may be, was not much more than the break-camel-back-straw. Much of the current economic crisis in Erdogan country was self-inflicted. Turkey has a budget gap of $50 billion, 16 per cent inflation and a horrendous current account deficit ($65 billion). The IMF is neither invited nor would it be willing to help in the current climate. $180 billion of Turkey’s foreign debt is maturing within the next year, and to maintain the current growth of seven per cent per annum, even more foreign money will be needed. The precipitous slide of the Lira (6.2 per USD) puts pressure on import-dependent consumers and corporations, and has doubled the cost of foreign currency loans for consumers, corporations and the State – nearly $300 billion in total.
That economically illiterate Erdogan dictates to his central bank governor how to best maintain financial stability does not really comfort foreign investors. And neither does Berat Albayrak, 40, Erdogan’s son-in-law, all-powerful Minister of the Treasury and Finance and heir-presumptive, have the stature to infuse much-needed trust into the markets. The smell of cronyism, nepotism and graft is too pungent.
The risks inherent in the unfolding political drama are not only confined to Turkish shares and bonds (I still hold on with white knuckles to a bond of Efes, the Turkish beer brewer), or even to emerging markets currencies and stocks, which all started to show symptoms of serious infection since the drama unfolded. At danger are many European banks, which are either heavily invested in Turkey, or which own large affiliates in the country: BBVA, BNP Paribas, Sperbank, Unicredit.
If these finance structures start to wobble once more, like they did in 2008, there will be no money to bail them out. And panic will spread like wildfire, taking all our savings with it.
Andreas Weitzer is an independent journalist based in Malta. He reports on the economy, politics and finance.
The purpose of his column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.