Turkey at the crossroads

Turkey is a member of NATO and has a comprehensive and complex Association Agreement with the EU. In some senses Turkey’s border is the EU’s border given the provisions on movement of people. Germany is friendly towards Mr Erdogan, not least because the EU welcomes Turkey’s willingness to provide a home for refugees from war torn parts of the Middle East. The EU offers Turkey financial assistance with the refugee programmes, and with strengthening the long Turkish border with Middle Eastern countries. All this implies Turkey remains an important part of the Western system.

Turkey also has a complex set of relationships with Arab countries to the south.  An opponent of Islamic State and similar terrorist groups, Turkey is also opposed to Kurdish independence movements and worried about the likely attack on Idlib by the Syrian state given the number of rebels and displaced persons in the last remaining rebel stronghold in Syria, close to Turkey. Turkey has allied herself with Qatar, a state which has fallen out with Saudi Arabia, the USA’s main ally in the region.

In recent months there has been a sharp deterioration in US/Turkish relations. President Erdogan felt the US did not offer sufficient support and sympathy when there was an attempted coup in Turkey. The USA thought Turkey over reacted and imprisoned too much of the opposition to the regime. Turkey does not like the way NATO works with Kurdish forces in its interventions in Syria, and is now locked in a trade war with the USA over steel and aluminium tariffs. Recently the USA  has renewed its demands for the release of Pastor Brunson, and Turkey has imposed a range of high tariffs on items like cars and rice from the USA.

President Erdogan timed his re election well. The economy was growing at a rapid 7%. Public spending shot up just before the polls, and the government urged the Central Bank to keep interest rates down despite the obvious build up of inflationary pressures. Shortly after the election win markets turned against the Turkish lira and demanded action to raise rates, slow the economy, rein in debts and curb price rises. The President has no wish to do these things, and has appointed his son in law as Finance Minister to help him see off unruly markets.

So far markets have been getting the better of him. A massive slide in the lira is posing problems for the Turkish companies that took out substantial dollar borrowings in the good days. The Central Bank has raised rates to 17.75 % despite Presidential reluctance, but markets want more. Now Qatar has provided some much needed relief for the banking system by offering loans of $15bn to ease shortages of foreign exchange. The Central Bank has imposed controls on commercial bank dealings  in foreign exchange, and the government may turn to a wider range of controls on the movement of money to stem the run against the lira.

Russia sees all this as an opportunity. Turkey has already bought some anti aircraft missile defences from Russia despite being a NATO member. The USA is now blocking the sale of F35s to Turkey and is concerned about what technology and intelligence it shares with a member state that is developing closer relations with Russia. Tomorrow I will look at the options facing the main participants and discuss what might happen next.


  1. Fedupsoutherner
    August 17, 2018

    I have always been uneasy about Turkey joining the EU and now I can see why. The sooner we get Brexit the better.

    1. Hope
      August 18, 2018

      May gave an additional £330 million of our taxes to the immigration pact and thanked by Merkel. Of the 800 alleged refugees taken in here only 8 turned out to be Syrian! So much for May’s lie about secure borders and proper vetting.

      May’s policy responsible for the highest crime rate in London with Murders and stabbing out of control. May cut police numbers by 20,000 and effectiively stopped the police using stop and search. In her vinctivenesss towards the police she has made us all unsafe and placed us in danger. The same for the terrorist attack by a foreign born citizen the other day. May is responsible. I hope the victims and families use their vote and voice in opposition to this insidious woman. She has decided to block a police pay rise against all other public services receiving one. Her vindictiveness towards the police will impact directly on our safety. The facts relate directly to the events this week and today whether further stabbing occurred.

    2. Rien Huizer
      August 18, 2018

      Turkey is not going to join anytime soon (neither are Ukraine, Albania and other political works in progress, but there is less opposition to those countries from some members ). There is more appetite for losing the Visegrads, Greece and maybe Italy (all of which are unfeasible unless they jump. The visegrads keep forgetting who pays their bills and how small (Poland excluded) their populations are) than admitting more troubled pseudo-democracies. And there is no current US pressure to do so. The current tasks for the EU are:
      – to freeze the “ever closer union” process -only one or two supporters left;
      – to use current episodic growth for trimming the Budget
      – to streamline regulations
      – adopt modifications to the mobility regime
      – make defense procurement more efficient by lifting carve-outs in the general gvt procurement rules
      – finish the EUR project (and force qualified EU members to adopt the EUR or accept serious consequences (Poland, Sweden, Czech republic); you cannot discipline Italy while Sweden is allowed to have parasitic FX policies.

      1. Mitchel
        August 18, 2018

        I see Romania doesn’t feature in your list of members the EU should perhaps lose.I assume it’s an oversight…have you seen the reports coming out of the country this week?

        1. Rien Huizer
          August 19, 2018

          Not an oversight. Romania (and Bulgaria) are not ready for EUR membership and are keeping a fairly low profile. Like the Visegrads, their accession was premature. Ask Tony Blair.

  2. Nig l
    August 17, 2018

    The Grauniad had a nice quote comparing Erdogan view of democracy to Putin. You vote, I win. As they say he has systematically emasculated the opposition so was always going to be successful.

    Good time to visit as a tourist!

    1. Mitchel
      August 18, 2018

      The nascent Soviet Union under Lenin played an instrumental role in the birth of the Turkish Republic.It provided the guns and gold for Kemal Attaturk to take over the government,frustrate the terms of the Versailles settlement and crush the western interventionists.He,in combination with the Red Army,also launched a pincer to successfully expel a British force that had been landed in the Causasus to seize control of the Causasian oil wells and rail infrastructure.

      If you are ever in central Istanbul,have a look at the Republic monument in Taksim Square-the Soviet contribution is honoured by statues of Semyon Aralov,Lenin’s ambassador to Attaturk,and the Red Army generals,Mikhail Frunze and Kliment Voroshilov.

      1. Mitchel
        August 18, 2018

        Causasus should read Caucasus

  3. Fedupsoutherner
    August 17, 2018

    John, is there a cut off time for comments? For two nights now I have been unable to post in the evenings. The captcha just keeps going around but not connecting. I don’t have problems during the day. Just an observation. Not a complaint.

    Reply No, there is no cut off time. I need the captcha as without it the site is inundated with commercial and other intrusions.

    1. mancunius
      August 17, 2018

      John, I’ve been having the same problem on your website today until just now – captcha endlessly rotating and not enabling a comment.

    2. NickC
      August 17, 2018

      Reply to reply, JR, I think Fedupsoutherner was referring to captcha not working at all rather than merely the chore of completing it correctly.

  4. Peter
    August 17, 2018

    Meanwhile Erdogan has pushed Turkey from a secular state to a more Islamic one. He pushed for Turkey to be allowed EU membership at the same time.

  5. Mark B
    August 17, 2018

    Good morning

    Turkey is in a strong position. It can use its geographical position as political leverage. Playing the West against others is a smart move.

    Erdogan does need to be careful. If the economy goes all ‘South American’ he will be out. I suspect that is why he has appointed trusted people to key places.

    Turkey is defiantly a place to watch.

  6. eeyore
    August 17, 2018

    Busy, rackety, unreliable, formidable, Turkey occupies a vital crossroads in the world’s roughest neighbourhood. It has its options: if the West does not take pains to keep Turkey onside it can always go elsewhere, as our host reminds us.

    When it did so in the past there were uncomfortable results for everyone living west of it. Yes, Turkey’s a bastard. But we’re much safer when it’s our bastard, and Western policy should not forget it.

    By the way, I think JR’s summary of a complex situation in six short paragraphs is yet another of his little masterpieces of precision and compression. “Aferin!” as the Turks say – bravo!

    1. forthurst
      August 17, 2018

      I’m not so certain: to describe those in Idlib who weren’t born there as rebels when they are all terrorists from as far afield as China is something of a stretch. Apart from the UK, most countries do not welcome terrorists to come to cause trouble and claim benefits so not only Turkey needs to be concerned with the detritus that is flushed out of Idlib by the SAA together with its invited allies including China.

      When will the British people be told what national interest has been served by our involvements in the ME since the attack on Iraq? We are still involved in the ‘civil’ war in Syria as well as the genocide in Yemen. Why?

      It is time for a nationalist government which is actively hostile to the globalists that have been pulling our strings for far too long. It is time for PR and the end to the liblabcon traitors.

      1. getahead
        August 17, 2018

        When will the British people be told what national interest has been served by our involvements in the sclerotic racket which is the EU?

    August 17, 2018

    I am intrigued by Merkel’s relationship with Erdogan and Putin.

    We are constantly bombarded by the liberal left stooges about how Trump is a puppet of Putin, which is of course propaganda designed to tarnish US democracy, and yet this coterie of liberal left propagandists remain silent on Merkel’s (Germany and the EU) reliance on Russian energy.

    Turkey also use its gateway influence to hold the EU and indeed Germany to ransom regarding flows of peoples from the ME, deliberately destabilised by the previous US president

    What is becoming apparent is that the west’s liberal fraternity turn a convenient blind eye to illiberal governments when it suits their program of flooding the airwaves with anti-Trump bile

    1. Rien Huizer
      August 18, 2018

      Trump is no-one’s puppet: he is too unpredictable. As to Turkey’s alleged leverage over Europe via the refugee deal: Greece cannot handle more entrants to the informal labour market and it is technically easy to sink those boats while still in Turkish waters. So both the Greek “pull” nor the Turkish “push” have changed. It is unlikely Erdogan could yet again flood the EU with Syrian etc migrants. And of course, the do-gooders have become disillusioned, as usually happens.

      1. NickC
        August 18, 2018

        Rien said: “Trump … is too unpredictable”. Far from it – he is far more predictable than most politicians. He says what he’s going to do, then does it. It’s your fault you are so hostile you prevent yourself from believing him.

  8. margaret
    August 17, 2018

    Interesting read John . Reads like a history text book .

  9. Ian wragg
    August 17, 2018

    Erdogan is a megalomaniac and bully who wants absolute power.
    Fortunately we have Donald who understands this and is willing to face him off.
    If Turkey starts to let millions of economic migrants into Europe we should blockade them instead of providing a taxi service.

  10. Alan Jutson
    August 17, 2018

    The EU gives Turkey money to help the EU avoid a huge mess with mass outside immigration, and also funds the building of a hard border, with infrastructure and border controls, and Turkey is not an EU member.

    The EU then wants the UK to pay the EU £ Billions not have a hard border, no free trade deals, and we are supposed to be friendly.

    Turkey is alleged to operate a questionable justice system, where it would seem from reports that journalists and opposition party members can be held in detention.

    The UK has an open justice system which operates as far as we know, without political influence.

    Wake up Mrs May the EU are not your friends !!!!!!

  11. fedupsoutherner
    August 17, 2018

    It must be my phone then but I am also having problems posting on my computer. In fact this reply is giving me difficulties. Must be something to do with our internet provider. Thanks for reply.

  12. jonP
    August 17, 2018

    There’s little point in discussing Erdogan’s Turkey-

    Erdogan himself is just a thug of the old school, with a 1930’s style modus operandi, and going to bring his country to ruin – looks like

  13. Adam
    August 17, 2018

    Turkey is an example indicating why the UK needs to be free to make its own choices, without being railroaded into whatever the EU might decide is better for others.

  14. Norman
    August 17, 2018

    Yet another old empire, rising from the dust! Its just over 100 years (11/12/1917) since Field Marshall Viscount Allenby (a descendant of Oliver Cromwell) dismounted to walk through the Jaffa Gate (David’s Gate), as Jerusalem fell to him without a shot being fired: a pivotal moment in the history of our times.

    1. Rien Huizer
      August 18, 2018

      You should have mentioned Gallipoli as well..

  15. Christine
    August 17, 2018

    Fedupsoutherner – I’m having the same problem with reCAPTCHA but also during the day. It only occurs when replying to a post.

    1. Adam
      August 17, 2018

      I’ve noticed similar symptoms, Christine.

    2. fedupsoutherner
      August 17, 2018


      Good to know I’m not the only one. My problem seems to be mainly on my phone but today I have been unable to post during the day on my laptop. Very frustrating.

  16. Backtoback
    August 17, 2018

    No need to wait until tomorrow..Trumps options are to ‘back down’ or else put on more pressure to have the evangelical pastor released..but with the mid term elections coming up fast he feels he has no choice but to persist with causing chaos

    Erdogan’s appeal is in large part to the Turkish islamic mainly rural based. He will try anything to impress them like by being the hard man..but he will be the loser when it comes to trump.

    Unfortunately, either of these two gents could kick off a world war in order to divert attention away from their failings and to stay in power

  17. Prigger
    August 17, 2018

    Looking at the world map and superimposing a kind of historical map, it is understandable if we were Turkey to straddle East/ West geo-politically and why it is intrinsically unstable.
    Closer to our home the UK, Turkey resembles in some ways the Czech Republic renamed officially Czechia. The third name change since the day before yesterday. What’s in a name? In the case of Turkey, the land of the Turks, it has stood the test of time, but the title is of a book of shifting texts, peoples, chapters, re-titling, and analyses.
    With an ever crumbling EU, Turkey has little choice but to jolly up to powers North,East and South Eastwards.

  18. Stred
    August 17, 2018

    My phone and laptop won’t get onto capcha and just wont connect from last night. This is the first time it worked

    1. fedupsoutherner
      August 17, 2018

      @Stred. Same problem as myself and Christine Stred.

  19. margaret howard
    August 17, 2018


    “Russia sees all this as an opportunity. Turkey has already bought some anti aircraft missile defences from Russia despite being a NATO member”

    “Britain has sold almost £50m-worth of arms to Turkey since the crackdown on opposition groups by the government of Recep Tayyip Erdoğan after last year’s failed coup attempt”



    “Turkey also use its gateway influence to hold the EU and indeed Germany to ransom regarding flows of peoples from the ME, deliberately destabilised by the previous US president”

    This exodus of refugees was caused by the illegal US/UK wars in the region starting with Iraq which have destabilised the whole Middle East. They have washed their hands of the problem now leaving the EU and especially Germany to deal with it.


    1. mancunius
      August 17, 2018

      Merkel needed little help from anyone else in destabilising Germany, by having scandalously allowed all and sundry into the country, out of a mistaken belief that borders are not needed. Most of the ‘entrants’ are not genuine refugees, many are criminals, some are terrorists. German citizens have been deeply betrayed by the monstrous political stitch-up between the CDU and the SPD that prevents any effective opposition (except for feeble internal objections by a weak CSU party leader).
      The longer that stitch-up lasts, the more extreme will the citizens’ reaction be. All it will take is another great wave of immigration enabled by Turkey.

    2. Edward2
      August 17, 2018

      Nothing to do with the Sunni Shia civil wars in the Middle
      And the Taliban
      And Isis and their terrorising of ordinary people.

    3. NickC
      August 17, 2018

      Margaret Howard, Merkel specifically invited the gimmigrants in – she didn’t have to. And most of them are not from Iraq, Syria or Libya, they are Africans from Sudan, Ethiopia etc.

      1. Rien Huizer
        August 18, 2018

        Now that deserves factual support.

        1. NickC
          August 18, 2018

          Rien, I assume you don’t need help with the fact that Merkel invited gimmigrants into Germany? As for the ethnic mix in Germany, apart from migrants from other European nations, and the guest-worker Turks (3.7%) the next biggest group is Africans at 1% (Worldatlas).

  20. Andy
    August 17, 2018

    Erdogan, Putin, Trump – all hard right nationalists who have messed up their countries in various ways while pretending to be populists.

    Flirting with (authoritarianism? ed), as they now all are, these are three of the most dangerous men on the planet. And the contagion spreads wider.

    We see that, here, many self proclaimed ‘Conservatives’ and much of UKIP are actually now very much at the fringes of what constitutes acceptable politics. As is the Labour leadership:

    The rush by both sides to the extremes shows that the lessons of the 1930s have not been learned.

    1. Prigger
      August 17, 2018

      Thank your lucky stars we had enough nationalists here in the UK through the centuries. Quite conceivably, some of your ancestors would have ceased to be and we would not now have the pleasure of you

    2. Edward2
      August 17, 2018

      And Labour’s top people are nice liberal politicians sat in the centre of politics.

    3. NickC
      August 17, 2018

      Andy, The EU has helped prop up Erdogan and, by its gas dependency on Russia, Merkel’s Germany is somewhat equivocal, shall we say. Into this minefield created by the corrupt and politically inept but arrogant EU, the PotUS Trump has to tread warily, and so far is doing an excellent job. We are lucky to have him rather than the truly evil spirit cooking supporters of the shifty Mrs Clinton (shifty as demonstrated by Trey Gowdy).

  21. Chris
    August 17, 2018

    If you want an explanation/interpretation of President Trump’s policy towards Turkey, these two articles on the US website, The Conservative Tree House, provide some insight:

    Sketchy Erdogan Whines: “U.S. Waging Economic War Against Turkey”….
    “In what can only be described as the nonsensical rantings of an ideologue who refuses to even fathom the geopolitical Trump changes around him, Turkish President Recep Erdogan writes an op-ed in the New York Times to tell Americans POTUS Trump, and like-minded allies, are bullying/destroying the Turkish economy because his authoritarian regime has imprisoned an American pastor………”

    President Trump Doubles Steel and Aluminum Tariffs on Turkey – Turkey Responds “Imploring” Trump To Return To Table…

    “Interestingly, anyone who has followed Turkish geopolitics closely will likely note a confrontation on ideology was bound to happen. The triggering event has become the Turkish imprisonment of American Pastor Andrew Brunson.
    Turkey has always been a tenuous NATO ally. The totalitarian behavior of Turksih President Recep Erdogan has generally been antithetical to freedom and U.S. interests. There have been many examples of sketchy Turkish interests in the past decade – SEE HERE – including Erdogan’s support for the Muslim Brotherhood and providing safe-harbor for the exiled Brotherhood leadership…..”

  22. Stred
    August 17, 2018

    Terrorist attacks and Erdo going religious and building himself a huge palace and mosque won’t have helped the economy much. Behavior towards the Kurds fighting Isis and killing a British volunteer helping them is not encouraging customers, although I did buy a Turkish fridge recently. But it was a secular fridge.

    1. Brit
      August 17, 2018

      @ Stred
      With all dictators, we should look to who and what could replace them in keeping their nation intact.
      Democracy is a nice idea. But it can throw up a mixed bag of surprises and conflicts actually making any law and order good or bad impossible in practical terms with the economy despite the very best efforts totally disintegrating with a “nicer” and infinitely more corrupt than formerly shifting-sand leadership.

  23. Jack
    August 17, 2018

    The crazy part is that Erdoğan has it right about interest rates. He says “the interest rate is both the mother and the father of the inflation“, which is correct.

    Higher rates directly increase the government deficit via increased spending on interest payments. This is stimulus to the economy and increases aggregate demand.

    Higher rates also directly increase prices in another way. The term structure of rates directly feeds into the term structure of prices, as stated by Warren Mosler below. This is the main mechanism for how interest rates influence prices. Raise rates to 2 million % and the inflation rate will go to ~2million % annually.

    The spot and forward price for a non-perishable commodity imply all storage costs, including interest expense. Therefore, with a permanent zero-rate policy, and assuming no other storage costs, the spot price of a commodity and its price for delivery any time in the future is the same. However, if rates were, say, 10%, the price of those commodities for delivery in the future would be 10% (annualized) higher. That is, a 10% rate implies a 10% continuous increase in prices, which is the textbook definition of inflation! It is the term structure of risk free rates itself that mirrors a term structure of prices which feeds into both the costs of production as well as the ability to pre-sell at higher prices, thereby establishing, by definition, inflation.

  24. Den
    August 17, 2018

    It is weird that a NATO country would buy Russian defence systems. Unless it is to evaluate them for NATO. In which case I would be surprised that Mr Putin
    would allow such a transaction unless he had his own ulterior motives.
    Was it not long ago that the Turks shot down a Russian war plane over Syria/Turkish air space? Hmm.

    1. Mitchel
      August 18, 2018

      He wanted a Russian air defence system because he feels he is more likely to be deposed by forces using US made equipment -and with the ability to electronically disable US supplied AA systems.A Russian system especially one as vaunted as the S400 would make them think twice.

  25. mancunius
    August 17, 2018

    The Turkish state was founded on a shifting tectonic plate between islam and secularism. Attaturk fought to secularise and modernise the country – banning the fez, for example. After his death fundamentalism crept back into the country. Then the army staged coups, and reverted to secularism. Then… the same carousel ad infinitum.
    Given Turkey’s equally ambiguous geographical situation between east and west, that contradiction is unlikely ever to be permanently resolved. The west’s eternal optimism that it can become a western state is an illusion.

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