Relations between Turkey and America have been souring for over a year. The first sign that all was not well was the USA’s suspension of non-immigrant visa operations at all diplomatic facilities in Turkey in October of last year as a result of the arrest of two local consulate employees in Istanbul over alleged links to the movement of Fethullah Gülen, an exiled cleric based in Pennsylvania, who is widely believed to have orchestrated the failed coup attempt in Turkey in July 2016. Ankara has long demanded the cleric’s extradition, and Turkey responded in kind to the America’s action by suspending all non-immigrant visa services for American citizens.
Other issues where the two countries have deep differences range from the West’s slowness to condemn the 2016 failed coup attempt, divergence on how the war in Syria should be handled, and Turkey’s much criticised record on human rights and freedom of the press. Turkey is particularly worried about the U.S. support for Kurdish militias fighting against ISIS in Syria. Turkey considers the People’s Protection Units (YPG) an affiliate of the Kurdistan Workers Party (PKK), a separatist insurgency and designated terrorist group. Tensions increased when Turkey entered the Afrin enclave in the north of Syria on January 21st of this year to remove the YPG. Turkey’s military operation was supported by extensive shelling and aerial bombing. Some 25,000 pro-Turkey rebels from the Free Syrian Army (FSA), accompanied by an unknown number of Turkish troops, were involved in the operation. This military operation came to a conclusion with the capture of the town of Afrin on March 18th of this year. The USA watched the Afrin operation with great concern and made its discontent very clear. Turkey has openly declared its intention to conduct a similar operation in the Manbij enclave to the east of Afrin, and the USA appears to have made it understood that it will not just stand by and watch this time. There is a sizeable American presence in Manbij, and it appears that Turkey has since toned down its rhetoric and does not appear to have as yet made any military preparations for an attack on this enclave. The Kurdish militias had felt let down by America’s standing down in the face of the Afrin operation and suspended their support for the coalition’s struggle against the remaining pockets of ISIS resistance in the east of Syria. They have since resumed their operations against ISIS, but it is likely they have won some important guarantees from the Americans in their effort to retain control over the regions they have freed from the ISIS.
Turkey has been cozing up to Russia ever since the latter withdrew its sanctions against Turkey for shooting down one of its fighter jets. Turkey is cooperating in the construction of the “Turkstream” pipeline which runs along the seabed just off the Turkish Black Sea coast. This project is much coveted by Russia to ensure an alternative route for its natural gas to Europe. The delayed nuclear energy plant being built by the Russians at Akkuyu, Mersin, had its ground-breaking ceremony on April 3rd, 2018. In December 2017, the two countries finalised an agreement for Turkey to purchase Russia’s long-range S-400 missile defence system. This came as a big disappointment to Turkey’s Nato allies, and the Americans have been talking about implementing sanctions against Turkey should this purchase go ahead. The delivery of America’s F35 fighter jets purchased by Turkey has apparently come under review, but the Turkish government has insisted that this delivery will take place. In recent months, during Turkey’s operation in Afrin, Syria, there has also been talk of America closing its Incirlik air base near Adana. The Americans denied this though they have appeared to have removed a fighter fleet, leaving only its inflight refuelling aircraft.
Turkey now enjoys closer relations with Iran, an ally of Russia in the latter’s support for Syria’s Esad government against the rebels in Syria trying to topple Esad. Turkey, Russia and Iran conduct regular meetings to discuss the war in Syria. This is surprising considering the Turkish President Recep Tayyip Erdoğan’s enmity towards the Esad government and his support for the rebels in the north of Syria. Iran is not a natural ally for Turkey because Iran is a largely Shia religious sect dominated country whereas Turks are mostly Sunni Muslims, and Iran is considered the number one enemy of most Middle Eastern Arab countries, with whom Erdoğan supposedly enjoys very close relations. The region clearly has very confusing and illogical alliances, but the pictures of Turkey’s Erdoğan, Russia’s Putin and Iran’s Hassan Rowhani holding hands as a statement of their commitment to each other clearly would not have gone down well with the Americans, who are supporting Israel and as such withdrawing from the nuclear agreement Western countries so painstakingly drew up with Iran.
America’s decision to move its embassy from Tel Aviv to its new building in Jerusalem, thereby recognising Jerusalem as the capital of Israel, was fiercely opposed by Erdoğan, who also lashed out at the Israelis for their disproportionate treatment of Palestinians protesting the new embassy on Gaza’s border with Israel. Turkey recalled its ambassadors both to America and Israel in protest. This issue has pushed the bad feeling between Turkey and the USA to levels never seen before.
Another issue which has taken the headlines very recently is the case of the jailed American pastor Andrew Brunson, who was arrested in October 7th, 2016 and now faces up to 35 years in jail on terror and spy charges. Brunson is accused of having links to supporters of Fethullah Gülen. Indeed, President Erdoğan hinted in September 2017 that Brunson would be returned to the U.S. if Washington extradited Pennsylvania-based cleric Fethullah Gülen to Turkey. Trump and the U.S. State Department have repeatedly called on the Turkish government for his release. A letter signed by a bipartisan group of 66 senators was sent to President Erdoğan. The letter described the indictment detailing the allegations against the evangelical pastor as "an absurd collection of anonymous accusations, flights of fantasy, and random character assassination." It suggested that Brunson was being used as a “political pawn by elements of the Turkish government bent on destroying the longstanding partnership between two great nations." The letter added that U.S. government had been "patient in the hope that justice would be done" and Brunson would be freed. However, the 66 senators say they now have “concluded that other measures will be necessary to ensure that the government of Turkey respects the right of law-abiding citizens and employees of the United States to travel to, reside in, and work in Turkey without fear of persecution.” On April 30th, it was reported that three U.S. senators had introduced a bill to block the planned transfer of more than 100 sophisticated fighter jets to Turkey because it continues to hold the American missionary on what they view as trumped-up charges. Despite these efforts by U.S. senators, a court in the Aegean province of Izmir on May 7th decided to keep Brunson in jail up until the next hearing on July 18th. If the U.S. does introduce sanctions against Turkey in the near future, the Brunson case will undoubtedly be one of the major reasons behind this action.
Another court case of mutual interest to Turkey and the U.S. was recently finalised. This time, the court case was held in New York, USA, and the defendant was a Turkish citizen, Hakan Atilla, who worked as the deputy manager for Turkish state-owned bank Halkbank. Atilla was convicted in January of this year on five counts of conspiracy and bank fraud for his part of a conspiracy to violate United States sanctions on Iran, and on May 16th, 2018, he was sentenced to 32 months in prison. Atilla was one of nine people indicted in the case along with Turkish-Iranian gold trader Reza Zarrab, who was initially the lead defendant before reaching a deal with U.S. authorities to become a star witness against Atilla. Turkish President Erdoğan denounced the case and once again defended Atilla's innocence in an interview on Bloomberg TV before the sentencing. Erdoğan said that "If Hakan Atilla is going to be declared a criminal, that would be almost equivalent to declaring the Turkish republic a criminal. The prosecutors had requested a sentencing of 20 years in prison, but Judge Richard M.Berman said that Atilla was a minor actor in the conspiracy, was a “reluctant participant” who was merely “following orders”, and gave him the light sentence of 32 months which was even less than that which the defence counsel was willing to accept. The risk to Turkey relating to this court case is not the light sentence given to a Halkbank employee, it is the prospect of a substantial fine subsequently being imposed by the USA on Halkbank and other implicated Turkish banks. The fine could well run into tens of billions of dollars and would be an awful drain on Turkey’s already depleted cash resources.
Turkey’s preparedness to run into a head-on collision with the USA does not make a great deal of sense in light of the economic recession facing Turkey. It is very likely that the U.S. FED will continue to raise its interest rate. The move of investors towards U.S. treasury bills will help to dry up global funds available and will have a detrimental effect on emerging markets such as Turkey. During this difficult time, Turkey will need support from international financial institutions, which to some extent are controlled by the U.S. financial system.
On a more immediately pressing note is the danger to trade relations between Turkey and the USA. Trade activity between the countries has steadily increased in recent years. Turkey’s exports to the USA totalled USD 6,623 million in 2016 and USD 8,654 million in 2017. Turkey’s imports from the USA totalled USD 10,868 million in 2016 and USD 11,945 million in 2017. USA is Turkey’s 5th largest export market and the 4th largest importer to Turkey. The trade balance is in favour of the USA, and there is every prospect that this gap will widen further based on 2018 first quarter trade results declared. Despite this fact, the U.S. Government has indicated that it will be making substantial tariff increases on Turkish steel and aluminium imports. The Turkish government is now prepared to respond by introducing tariff increases of its own, amounting to an estimated USD 266.5 million, which will equal the cost of those imposed by USA on steel and aluminium. U.S. products effected will be coal, paper, walnuts & almonds, tobacco, unprocessed rice, whiskey, automobiles, cosmetics, machinery and equipment, and petrochemical products. It is without any doubt that business groups with interests in trade between the USA and Turkey will be watching developments in the on-going current diplomatic row between the two countries very closely.
Considering the strength and size of the U.S. economy, the economic fall-out as a result of the growing and seemingly unstoppable diplomatic tensions between the two countries will be far more serious for the already fragile economy of Turkey. Turkey unfortunately seems to be determined to take on the USA single handed and accept its fate whatever that might be.
E-commerce in Turkey has developed by leaps and bounds in recent years. During the 2013-2016 period alone, the retail e-commerce volume in Turkey increased by an average of 34% annually. The annual value of payments made through the internet increased by 30% annually during this same period. These percentage increases show how much the e-commerce eco-system has developed in recent years. The sector has shown the same performance in 2017, and further to 2016's volume of TL 17.5 billion, e-commerce volume in 2017 is expected to grow annually 25% - 30% to TL 22-23 billion in 2017 and to TL 30 billion in 2018.
Increasing young populations, and the low penetration into internet and e-commerce of under developed and developing countries are factors which make these countries important markets. In 2016, the world’s e-commerce was some USD 1.6 trillion, with the share of total commerce being 8.5%. Developing countries, while comprising 32% of global volume in 2011, today comprise 59% of global volume. This percentage is expected to increase to 64% by 2020. At TL 17.5 billion in 2016, Turkey’s retail e-commerce volume's share of total commerce had reached 3.5% compared with 1.7% in 2012. The share is expected to be over 4% in 2017.
According to 2016 statistics, the use of smart phones in Turkey is at 65%, which is considerably higher than the world average of 44% for smart phone use. This dramatic increase in smart phone use in Turkey has resulted in smart phones and other mobile devices increasing their share of total e-commerce to 19%. This percentage increased to approximately 22% by mid-2017 and is forecast to be over 49% by 2021.
In 2012, 45% of Turkey’s population had access to internet, but this percentage had reached 58% by 2016, a total of 46.2 million people using the internet. It is estimated that this percentage will reach 76% by 2020, with a total of 62 million people using the internet. The population of Turkey had reached 80 million at the end of 2017, making it the 19th most populous country in the world, and its 46.2 million internet users put it in 17th place in the world for internet use.
Another indicator of the potential for the internet in e-commerce is the use of social media. According to 2016 statistics, 36 million people used social media in Turkey. This percentage is fast increasing and is expected to reach 48 million by the end of 2017. It is estimated that on average some 87% of these social media users, that is 41.5 million people, access the internet every day. These users do not only check their social media accounts and email boxes, but also research product and brand information. Over half of these users purchase from the retail outlet having completed their online research.
The reason for purchasing online varies greatly in Turkey from other countries. Whereas in the USA 58% of internet users purchase online because it is more convenient, 32% purchase because it is cheaper, and the remaining 10% for other reasons, and whereas the percentages in Germany are similar with 56%, 35% and 9% respectively, in Turkey 36% of internet users purchase because it is more convenient, 56% purchase because it is cheaper, and the remaining 8% for other reasons.
With the establishment in Turkey of the e-commerce sector which has encouraged most major retailers to open online sales facilities, so many companies have decided to use the experience they gained in the domestic online market to develop e-export operations. Turkey however is still in the early stages of developing e-exports, and has not yet taken full advantage of the potential available. Examples of e-export markets offering an attractive target for Turkish products are those of USA, UK and Germany, which are very open to online sales and, as three of Turkey’s biggest current export markets, already have an awareness of Turkish products. Turkish textile products are in the most advantageous position here. Middle East countries such as Saudi Arabia, Kuwait, Qatar, and Jordan also offer online marketing opportunities, with regard textiles, food and wedding related products. The strategic geographical location of Turkey clearly allows it easier logistical access to neighbouring countries, whether these be of Europe, the Middle East, or the Near East.
Despite the opportunities available, e-exporters currently face some major obstacles. These relate to logistical costs, concern about whether goods will reach their destination, customs duties and duration, duration of transport, and the possibility of goods not meeting their advertised description. The Turkish government has become very aware of the need to introduce legislation to create a more even playing field for Turkish companies to develop e-export markets. With this in mind, the Turkish government introduced its “E-Export Strategy and Action Plan” which was published in the Official Gazette on January 31st, 2018.
This “E-Export Strategy and Action Plan aimed to especially support those companies exporting through use of e-commerce, by establishing an eco-system which would assist the development of e-commerce in Turkey to ensure the promotion of Turkish goods and services in international markets. The plan foresees Turkey as being a global centre in providing e-commerce services, and to this end, it primarily aims to develop e-commerce logistics, to develop customs procedures to meet the needs of cross-border e-commerce trade, to assure effective security and control of goods in cross-border e-commerce trade, to encourage participation of small-sized firms as e-exporters, and to form alliances with international associations with the aim of developing e-exports.
The plan is an important step forward and offers hope for the elimination of the technical and bureaucratic obstacles facing the development of e-exports in Turkey. Through the implementation of these planned structural improvements, it is hoped that Turkey will be in a position to compete with developed countries in this field.
The Turkish government presented a new “debt restructuring and social reform package” before the Turkish Parliament last week. The package was announced by the Turkish Prime Minister Binali Yıldırım on April 30th, just weeks before the snap elections set for June 24th.
Yıldırım announced that under this package, the government would give TL 1,000 (USD 245) to pensioners before each of the two main annual Muslim holidays this year, and almost double the TL 265 lira quarterly additional pensioners’ allowance paid to pensioners of over 65 years of age to TL 500. There are some 12 million pensioners receiving pensions in Turkey. Yıldırım admitted that the package would cost the government initially between TL 22-24 billion (USD 5.4 - 5.9 billion).
This new package was undoubtedly timed as a sweetener for the up-and-coming elections on June 24th, 2018, as some 15% of the electorate are affected.
Normally, such a scheme would seem a little reckless, especially in light of the Turkish government’s already exhaustive efforts to pump money into the economy to regenerate growth following the failed coup attempt of July 15th, 2016. Indeed, when presented with such a strategy earlier, the present Deputy Prime Minister responsible for the economy Mehmet Şimşek had decried such an action and announced that if implemented he would vote for the opposition party Republican Peoples’ Party (CHP).
However, this time, to cover the financial draining caused by such a strategy, the government introduced measures which would help those who did not own deeds to their properties. At a price, the owners of an estimated 13 million properties would finally receive their deeds, for which a potential revenue of some TL 48 billion (USD 11.5 billion) has been calculated. Under this package, the government has also proposed measures to restructure tax and social insurance premium debts to public institutions. Also included are traffic and military service fines.
Yıldırım said that “We are solving the disagreements our citizens have with public institutions through this package”. However, there is a fundamental defect in this “debt restructuring and reform package” which needs to be addressed. There is now a clear incentive for companies and citizens to not pay their taxes, social insurance premiums, fines, and other obligations to the state. In 2017, there was a pardon for outstanding tax and social insurance debt. We now have a further pardon this year simply because of approaching elections. If the taxpayer believes that there is no point in paying his debts to the state on time as he will be pardoned in due course, there is a danger that the ability of the state to collect dues will be seriously impaired.
The same applies to the many citizens who built property on land which did not belong to them. Under the new package, it is as if they are now being rewarded for being dishonest, and there is a danger of a total breakdown in values. The adverse effect on the behaviour of Turkish society is worrying. This is the first time such a comprehensive amnesty has been applied to illegal home owners, and as such, it is a sign of the desperation of the Turkish government that it should revert to such means to raise revenue.
Since the failed coup attempt of July 15th, 2016, the Turkish government has been determined to find a way to generate growth in the Turkish economy. Faced with dramatic negative growth in the third quarter of 2016, it first changed the calculation formula for GDP in Turkey. It then introduced its Credit Guarantee Fund (CGF) to support the private sector and temporarily introduced dramatic tax cuts on certain white household goods to promote demand in the related sectors. The fiscal budget showed a large deficit in 2017, and an even larger deficit has been projected for 2018. The intervention of the Turkish army into Afrin in north western Syria has also been a drain on resources, and there is a risk of a much higher budget deficit. To be fair, the state of Turkey’s public finances when compared to other countries is fairly sound, but there is now a risk that this positive note may also be reversed.
The Turkish government has also continued to promote and support large infrastructure projects, and has acted as a guarantor in many of these projects despite the doubtfulness of their profitability. Indeed, it has been government consumption which has been largely behind the high growth rate of 7.4% recorded in 2017.
Despite many objections, the Turkish government has proceeded with its decision to sell off its state owned sugar factories. In normal circumstances, in the face of such fierce public debate, a government would consider delaying its decision until more favourable circumstances. In this instance, the government went ahead heedless of criticism.
The Turkish government, under the ruling Justice and Development Party (AKP), has conducted a successful privatisation programme over the last 15 years. The growth of the Turkish economy, with the resultant benefits to the Turkish populace as a whole, appears to have justified such a strategy. However, there now appears little left to sell off, and the government is looking for intriguing new sources of funds such as providing deeds for illegally obtained property. With the expected onset of a downturn in growth in the Turkish economy and a possible hard landing resulting in an economic recession in Turkey, the Turkish government has been forced to bring the parliamentary and presidential elections forward by some 18 months.
The Turkish government has now started to explore every possible avenue for raising revenue. The last “debt restructuring and social reform package” is a good example of the lengths to which the government is prepared to go. The only problem is that the government may soon run out of ocean, in which case it will have to revert to monetary policies which will have serious repercussions on the living standards of the Turkish people. This is not a strategy it wants to implement before such important elections.
For some time now there has been a great deal of mumbling about the state of the Turkish economy. Businessmen and people on the street alike talk amongst each other and discuss hardships endured. They present many arguments which support the case for a deteriorating economic environment. However, no one seems to have the courage to come right out and openly demand answers. Even members of the ruling Justice and Development Party (AKP) have been warned not to speak detrimentally about the Turkish economy. Negative talk seems to be discouraged and this maybe out of fear of being labelled as having a connection to the Fethullah Gülen movement which has been widely seen as behind the failed coup attempt on July 15th, 2018.
On the other hand, there does not appear to be anything drastically wrong when one studies the statistics available. The first figure which comes to mind is the 7.4% GDP growth rate for 2017, the highest since 2011 and a very impressive result which has outshone European economies which have had an overall growth rate of 2.5%, and most other emerging markets. Turkish exports in particular have performed very well, with the Turkish automotive sector having exceeded all expectations. Imports have also surged ahead, but this can largely be put down to the increase in energy prices. Total foreign trade activity in March 2018 reached an all-time monthly record. The foreign trade deficit has increased, but though the 2017 figure of USD 76.8 billion is higher than the USD 56.1 billion for 2016 and the USD 63.4 billion for 2015, it is much lower than the figures for each of the previous four years. The same scenario applies for Turkey’s current account deficit, which has recently been regularly mentioned by international financial institutions and rating agencies as a worrying development in the Turkish economy. However, the deficit for 2017 was USD 47.4 billion, and though higher than the USD 33.1 billion for 2016 and the USD 32.1 billion for 2015, compares well with the current account deficits in prior years.
Turkey’s inflation rate and unemployment rate are two more figures which have been continually flagged for scrutiny. Turkey’s average annual inflation rate was 11.13% in 2017, and this is certainly higher than the previous five years’ rates which varied between 7.5% and 9%. The annual inflation rate as of April 2018 was 10.85% and there are signs that this could increase further, especially following the recent deprecation of the Turkish lira. With regards Turkey’s unemployment rate, the annual rate was 10.9% in 2017 which is a figure close to those of the previous four years. The last figure we have is 10.8% for January 2018. The current inflation and unemployment rates do not reflect a serious downturn in the economy, though there is a fundamental feeling among the populace that these rates are in practice much higher.
Foreign Direct Investment (FDI) has been in decline over the last two years. FDI was USD 1,1 billion in the first two months of 2018 and a total of USD 10.8 billion in 2017. This compares with an average of USD 14.3 billion for the previous five years. Tourism income took a big beating in 2016 at USD 22.1 billion, down from USD 31.5 billion in 2015 after Russian sanctions were implemented following the downing of a Russian fighter jet by the Turkish air force. This recovered to USD 26.3 billion in 2017, and is expected to surpass USD 30 billion again in 2018.
Turkey’s fiscal deficit for 2017 was USD 13 billion, created mainly through tax reduction schemes implemented to boost growth in the economy following the failed attempted coup in 2016. It was decided that such incentives would need to be continued in 2018, hence the projected fiscal budget deficit of TL 65.9 billion (USD 17.3 billion). The deficit as of the end of the first quarter of 2018 is TL 20.4 billion. There is a risk that this deficit may increase due to the intervention of the Turkish army in Afrin in the north west of Syria. Turkey’s public accounts are on the whole very sound when compared with the debt ratios of other countries. However, the deficits emerging over the last two years could be a bad precedent for the future.
There is one statistic that does indeed reflect that all is not well and that is the value of the Turkish lira, which has devalued more than 10% in the first four months of this year alone. This development may be more due to speculation, political uncertainty, exaggerated negative analyses of international credit agencies, and the Turkish Central Bank’s inability to act fully, rather than to any underlying fault in the economy. In 2017, the Turkish lira devalued by 7.4%, which is fairly respectable when compared to the 20.6% devaluation in 2016, and the 25.4% devaluation in 2015.
On paper, the Turkish economy may look sound, but the reality may be much different. Early signs of a downturn in the economy may well be the slowdown in the house and automobile markets. Household unit sales fell by 14% in March 2018, and automotive sales fell by 6% in April 2018, compared with the same month of the previous year.
Considering the lack of willingness to discuss economic problems and the determination of the Turkish government to create a positive and up-beat picture of the economy, we are to a great extent left guessing as to what is really going on. The continuing of the state of emergency since the failed coup attempt in 2016 only makes this position even worse.
One thing is very clear though. The failed coup attempt of July 2016 had very serious implications for the Turkish economy, which went into contraction in the third quarter of 2016. Many companies, comprising a significant part of the economy and accused of Fethullah Güven connections, were taken over by the government. To reinvigorate the economy, which had received a tremendous blow and was in a state of shock, the Turkish government introduced tax incentives and its Credit Guarantee Fund (CGF), through which it guaranteed bank loans to companies. Many considered the CGF loans as good money after bad, believing that many companies which were already in serious financial difficulties had received loans which only delayed their eventual inevitable demise. This view point has received some credibility by the news that two big conglomerates have recently approached their banks to restructure their loans. Turkish food giant Yıldız Holding requested to restructure USD 6.5 billion of its USD 8.5 billion debt, and Doğuş Holding, with outstanding loans of TL 23.5 billion liras (USD 5.7 billion) as of the end of 2017, is also in talks with banks on restructuring its debt.
There now seems to be a consensus that the Turkish economy is overheating and facing the prospect of a hard fall. International credit ratings agency Standard and Poor’s (S&P), in reducing its sovereign rating for Turkey on May 1st, said that there was a “risk of a hard landing for Turkey’s overheating, credit-fuelled economy”, and the Economist magazine in its April 28th edition said that the Turkish economy “which has grown at breakneck speed since 2017, powered by stimulus measures and cheap credit, may be in for a hard landing”. S&P was scheduled to reappraise Turkey in August later in the year, but the urgency of Turkey’s situation had forced it to take more immediate action.
Undoubtedly the biggest indication that the Turkish economy may be heading into recession in the near future was the ruling Justice and Development’s Party’s (AKP) decision to bring forward the parliamentary and presidential elections by 18 months to June 24th, 2018. They are clearly aware of the need to be re-elected before the onslaught of any economic recession. They sowed the seeds but they have no intention reaping the harvest.
Relations between Turkey and the European Union have been deteriorating for several years. On a political level, there now seems very few issues on which they can find common grounds for agreement. On an economic level though, Turkey and the European Union still have strong ties, and it is very much business as usual. Over 50% of Turkey’s exports go to Europe, and Turkey is in turn an important export market for European goods. Many European companies have invested in Turkey by building factories, establishing regional offices, and participating in the investment in Turkey’s infrastructure. As is the case in a world of strong global trade, relations between countries are complicated by their economic inter-reliance. It is no longer possible to simply turn your back on a country because of your dislike of its political policies.
However, over a longer period of time, there is always a danger that political tensions between countries will filter down to their economic relations. For example, the governments will feel less inclined to promote trade between the countries, the number of trade missions will likely decrease, government backed financial and trade institutions will provide less support, and there will be less cultural interaction. We have already seen how the EU has put a hold on Turkey’s application to join the EU, how the customs union agreement between Turkey and the EU has not been upgraded, and how Germany for example issued a travel warning to its nationals about travelling to Turkey, The high tension between Turkey and Europe has showed no signs of abating, and it would appear that the continuing mutual mistrust may well soon have a serious detrimental effect on trade between the two countries. We have heard that European countries are still reticent about implementing planned investments and developing new projects in Turkey. Indeed, there has been a significant fall in foreign direct investment in Turkey over the last two years.
A further sign that relations between Turkey and Europe were not going to improve in the foreseeable future was the summit held in Varna, Bulgaria between Turkey and the European Union on March 26th, 2018, which passed without any concrete agreement being made. The Varna Summit was held under the auspices of the Bulgarian Prime Minister Boyko Borissov, the current president of the EU Council. At the summit, Turkish President Recep Tayyip Erdoğan met with European Council President Donald Tusk and European Commission President Jean-Claude Juncker.
Turkey went to the summit with a full agenda of issues it wanted discussed, including the transfer of delayed EU funds for refugees, visa liberalization for Turkish citizens, the updating of Turkey’s Customs Union agreement, and cooperation on counterterrorism. The recent tensions in the Mediterranean that were brought about by Greek Cyprus’ intentions to drill for natural gas in the island’s contested exclusive economic zone, a move which Turkey sees as a violation of the Turkish Cypriots’ sovereign rights, were also discussed. There was indeed a risk that the summit would be scuttled by Turkey’s promise to prevent the Greek Cypriots from exploring for oil and gas, following the blocking by Turkish warships of an Italian drilling ship from exploring for gas in the island’s waters. The arrest on March 2nd of two Greek soldiers who had inadvertently wandered into Turkish territory was another event adding to growing tensions. European leaders on March 22nd strongly condemned Turkey’s “illegal actions” toward Greece and Cyprus. A statement signed by 28 member states said that “The European Council strongly condemns Turkey’s continued illegal actions in the Eastern Mediterranean and the Aegean Sea and underlines its full solidarity with Cyprus and Greece.” Relations between Turkey and Greece have also recently been very strained because of the Greek failure to extradite eight Turkish troops who escaped from Turkey by helicopter on the night of the July 15th 2016 failed coup attempt to overthrow President Recep Tayyip Erdoğan. There have been close encounters between Turkish and Greek navy boats and fighter aircraft over the Aegean which is disputed between the two countries.
Another development which cast a long shadow over the Varna Summit was German Chancellor Angela Merkel’s sharp criticism on March 21st in the Bundestag lower house of parliament of Turkey’s military offensive in the northern Syrian town of Afrin. She strongly condemned Turkey’s actions which she found unacceptable despite its security interests. The Turkish Foreign Ministry responded the same day in a written statement which said that Merkel’s comments were “based on disinformation” and “not even remotely close to reality.” The Ministry added that ““Turkey is aiming to ensure its national security by using its right to self-defence and to hand over Afrin to its rightful owners [civilians] by liberating it from terrorists with ‘Operation Olive Branch”. Turkey had launched “Operation Olive Branch” on January 20th to clear YPG militants from Afrin, over which the Turkish armed forces and Syrian rebel allies had declared full control on March 18th.
There were few expectations of much being achieved at the Varna Summit, and the sides left having simply committed to maintain channels of communication. Turkey recently made a symbolic concession by releasing a number of journalists before the summit. However, the key to moving forward with the Customs Union agreement or visa liberalisation would appear to be Turkey’s lifting of the state of emergency. Turkish President Recep Tayyip Erdoğan also appeared to have few expectations from this summit in Varna, and his statements on Turkey-EU ties during the post-meeting press conference were milder than his frequent public addresses, reflecting a need for “business as usual” and continued engagement with the EU.
The differences between Turkey and the EU have opened up especially since the July 15th 2016 failed coup attempt, after which Turkey was not at all satisfied by Europe’s delayed show of support and sympathy. The Turkish government subsequently introduced tough security laws, and now where the EU sees violations of human rights and rule of law, Ankara sees necessary measures to confront numerous threats at home and abroad. The exchange of harsh messages between Turkish and European leaders last year damaged relations considerably, turning domestic public opinion in European countries against Turkey. The mainstream European parties still feel pressure from far right forces which are strengthening across Europe and this is one of the key factors preventing the EU from taking reconciliatory steps that could be interpreted as concessions to Turkey.
Despite seemingly irreconcilable differences, Turkey is an indispensable ally for the EU in terms of preserving security on the continent’s eastern and southern flanks, at a time when transatlantic relations are experiencing severe turbulence. Turkey and the EU have shared strategic interests in cultivating cooperation in the fields of security, economy, energy and culture. The appearance of willingness to maintain dialogue at the Varna summit was necessary as
A period of relative calm followed the Varna Summit, but just in case we cared to think otherwise, the European Commission published on April 17th its “2018 Report on Turkey”, which was very critical in its assessment of Turkey’s efforts towards joining the European Union. European Commissioner Johannes Hahn, who oversees EU membership bids, told a news conference after releasing the report that Turkey "continues to take huge strides away from the EU, in particular in the areas of rule of law and fundamental rights."
The report said that “ the broad scale and collective nature, and the disproportionality of measures taken since the attempted coup under the state of emergency, such as widespread dismissals, arrests, and detentions, continue to raise serious concerns. Turkey should lift the state of emergency without delay.” The report also criticised the 31 decrees taken to date under the state of emergency since they “have not been subject to a diligent and effective scrutiny by parliament. Consequently, the decrees have long not been open to judicial review and none of them has yet been subject to a decision by the Constitutional Court. These emergency decrees have notably curtailed certain civil and political rights, including freedom of expression, freedom of assembly and procedural rights. They also amended key pieces of legislation which will continue to have an effect when the state of emergency is lifted.”
The report noted that since “the introduction of the state of emergency, over 150 000 people were taken into custody, 78 000 were arrested and over 110 000 civil servants were dismissed whilst, according to the authorities, some 40,000 were reinstated”, and that “Civil society came under increasing pressure, notably in the face of a large number of arrests of activists, including human rights defenders, and the recurrent use of bans of demonstrations and other types of gatherings, leading to a rapid shrinking space for fundamental rights and freedoms.”
The report expresses its concerns regarding the independence of the judiciary and that human and fundamental rights have been challenged and undermined, accompanied by a “serious backsliding on the freedom of expression”.
With regards EU legislation, the report says the following :
“Turkey has continued to align with the EU acquis, albeit at a limited pace. There have been more instances of backsliding regarding a number of key aspects in the areas of information society, social policy and employment and external relations. Turkey is well advanced in the areas of company law, trans-European networks and science and research and it has achieved a good level of preparation in the areas of free movement of goods, intellectual property law, financial services, enterprise and industrial policy, consumer and health protection, customs union and financial control. Turkey is only moderately prepared on public procurement as important gaps remain in its alignment. Turkey is also moderately prepared in the area of statistics and transport policy where further significant efforts are needed across the board. Turkey has only reached some level of preparation in environment and climate change where more ambitious and better coordinated policies still need to be established and implemented. In all areas, more attention needs to be given to enforce legislation whilst many areas require further significant progress to achieve legislative alignment with the EU acquis.”
The Turkish Ministry of Foreign Affairs responded quickly with a statement which criticised the report for its lack of understanding of the difficult period Turkey was going through, and which accused the European Commission of being “unable to be objective and balanced”. The Ministry noted that “It is inconsistent for the EU to allege that Turkey is distancing itself from the EU while it continues to obstruct Turkey’s accession process with artificial and political blockages."
Turkey’s EU Affairs Minister Ömer Çelik also responded with a press announcement the next day on April 18th. Çelik said that the EU’s annual progress report on Turkey “does not present fair and objective criticism” and “is far from encouraging closer relations between Turkey and the EU”.
Turkey’s response to the European Commission’s progress report was fairly restrained when compared to outpourings in the past. The Turkish Ministry of Foreign Affairs reiterated that “despite all the negativity in the EU’s approach, EU membership continues to remain out strategic priority”. As long as Turkey remains seen to be determined to be a member, then the EU will not commit to severing negotiations. Neither wants to be seen as the side which backs down.
The EU has so far been content to just criticise Turkey rather than take any further more aggressive retaliatory or responsive action. It is unlikely to impose sanctions, but instead be prepared to keep the status quo, while at the same time maintaining moral pressure. The EU already has a number of countries within Europe which have worrying populist and authoritarian tendencies. A stand-off with Turkey is not a desirable outcome at this point in time. Turkey has more to lose in the event of any downturn in trade with Europe, and a relationship where EU adopts a critical, disinterested and passive role is not in Turkey’s interests. Turkey, as an emerging economy, does not want a non-committal EU which does not look positively in investing in Turkey and developing bilateral trade.