Türkiye and the German Dream
Türkiye and the German Dream
It was almost exactly 20 years ago when Kemal Dervis told a group of reporters in Ankara that in “in 20 years”, Türkiye would be one of Europe’s two biggest economies alongside Federal Germany.
Shortly after that remark, however, Dervis’s brief tenure as Türkiye’s “economic miracle worker” in Prime Minister Bulent Ecevit’s government was over. Dervis was not to become Türkiye’s Ludwig Erhard, the man who shaped West-Germany’s postwar economic revival, and Ecevit himself soon took his own curtain call.
Yet, at the time Dervis’s prediction didn’t sound too outlandish.
The radical reforms started under Turgut Ozal were given a wider scope helping to curb runaway inflation and attracting the largest inflow of direct foreign investment in Turkish history. The corruption that had gangrened the state-dominated rentier economy was also brought under control while Dervis’s clever measures saved the banking system from collapse.
So, why is Türkiye today, with a Gross Domestic Product (GDP) just above half that of Spain, still in the lower league in Europe?
Today Türkiye is returning to the nightmarish inflation that it had sacrificed so much to control. The national currency, the lira, stabilized after long yoyo periods, is once again on a downward slope. For the third year running Türkiye’s foreign trade deficit is expanding at an unprecedented rate while unemployment is also rising at rates unknown since the 1990s.
To put it mildly, the Turkish economy is in dire straits; a fact that a walk in Istanbul streets reveals with shops having no or few customers, hotels that report fewer reservations, more and more people riding bicycles because they cannot afford to fill their cars with petrol, and crowds of job-seekers moving around parks and bazaars. The latest estimates from the Central Bank show that the average personal debt is above 110 percent of the annual income.
Some causes of the current crisis are conjectural. Türkiye depends on energy imports at a time when oil and gas prices are shooting up. Erhard’s economic miracle in Germany happened when oil was priced at $2.70, the equivalent of $32 in current terms. Today, Türkiye faces prices well above $100.
At the same time, Türkiye, unlike “emergent” economies like Brazil has few exportable natural resources. Still accounting for 25 percent of the GDP, Türkiye’s agriculture has been facing growing problems in European markets because of stiffer regulations and the chill in relations with Brussels. When it comes to exports of manufactured goods, the “dumping strategy” adopted under Recep Tayyip Erdogan’s leadership, means that Turkish consumers pay a higher price than foreign buyers to cover the cost of state subsidies. That in turn adds to inflationary pressure.
Worse still, part of earnings from industrial exports is lodged in foreign banks at a time that the flow of foreign direct investment is getting thinner. With the global Covid crisis now in its third year, Türkiye has also lost a good part of its income from foreign tourism. In many places now most of the foreign tourists are low-spending Russians trying to get away from the impact of the Ukraine war.
In the past four years foreign investment, much of it from oil-rich Arab countries, Iran and Russia, has been directed at real estate projects that create bubbles like the ones that pushed Spain to the brink in the 1980s.
Interestingly, the Turkish diaspora, estimated to be around 12 million, is cutting back remittances and investing less in the old homeland. The grim economic prospect has encouraged emigration, especially by better-educated and more skilled workers needed for new technology-based industries. This compounds the problems created by the fall in national research and development budgets to just above 1 percent of the GDP compared to almost 4 percent in Federal Germany when Erhard (The Fat One) was in charge of the economy.
However, the current crisis may also have deeper political reasons. In his wanton quest for faux-grandeur, President Erdogan has embarked on an adventurous and costly foreign policy. He has wasted a lot of money trying to get a seat at the top table in Libya with zilch for result.
Another costly chimera got Türkiye involved in the Transcaucasian conflict, again with no benefit to the Turkish economy. Despite Ankara’s massive support in the war against Armenia, Azerbaijan (Baku) isn’t even ready to sell oil to Türkiye with the same discount that Russia and Iran offer.
Instead of negotiating a fair share of newly found oil and gas reserves in the Aegean Sea with Greece, Erdogan has opted for pseudo-nationalistic saber-rattling that drives away would-be investors.
Erdogan has also got Türkiye involved in glory-chasing but costly gesticulations in Kosovo, Northern Macedonia, Bosnia-Herzegovina, and Albania, not forgetting the decades-long involvement in Northern Cyprus which has proved to be an increasingly costly but growingly ugly mistress for the pashas. Another ugly but expensive mistress is the Muslim Brotherhood (Ikhwan al-Moslemeen).
Erdogan brought it under Turkish thumb at the cost of damaging ties with Doha and by bribing the Egyptian and Tunisian leftovers of the “Brotherhood” leadership.
Taking over the “Brotherhood” was supposed to complete Erdogan’s victory over the Fethullah Gulen’s movement, leaving “ the Sultan” as the unchallenged aspirant for the leadership of politicized Islam in and around the Mediterranean.
But that is not all. Erdogan has expanded the war that Türkiye has waged against Kurds for almost half a century to parts of Iraq and Syria. For the past five years, he has been trying to carve out a Turkish glacis in northern Syria’s largely Kurdish region. Turkish experts believe that the adventure is costing around $10 billion a year, almost twice what Ankara gets from Brussels to keep Syrian refugees away from the EU dreamland.
Erdogan’s obsession with getting chunks of Syria and Iraq has prevented Türkiye from playing a constructive role in stabilizing its two neighbors one way or another. Meanwhile, corruption at all levels is returning with a vengeance reminding many Turks of the late 1990s when Ankara was dubbed a den of thieves.
Erdogan apologists claim that he has put himself “at the center” of the new geostrategic “big game”. Türkiye, they say, remains a member of NATO but also a respected interlocutor for Russia. It can talk to the mullahs in Tehran and the mandarins in Beijing. Erdogan can also sell drones to Russians and Ukrainians to kill each other.
Well, maybe. But anyone who tries to sit between two, not to say several, chairs risks ending up between chairs right on the floor.