Analysis
Turkey and the Global Economic Crisis
Summary: It is now apparent that
the global economy is headed for
a deep and prolonged crisis, with
potentially dramatic consequenc-
es for emerging as well as de-
veloped markets. Turkey is in no
sense decoupled from the effects
of this global turmoil. Over the
next few years, economic stress
could have a dramatic effect on
Turkey’s internal and external
scene, including regional security
and the prospects for Turkish
relations with the European Union
and the United States.
The change of leadership in
Washington offers an opportunity
for a change of course in U.S.-
Turkish relations. There will be a
chance to repair at least some of
the damage inflicted by the Iraq
experience and the more general
climate of friction and mistrust
that has characterized the bilateral
relationship in recent years.
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by Dr. Ian O. Lesser*
WASHINGTON — It is now appar-
ent that the global economy is headed
for a deep and prolonged crisis, with
potentially dramatic consequences for
emerging as well as developed markets.
The crisis may also prove transforming
for geopolitics and international rela-
tions. Turkey is in no sense decoupled
from the effects of this global turmoil.
Over the next few years, economic stress
could have a dramatic effect on Turkey’s
internal and external scene, including
regional security and the prospects for
Turkish relations with the European
Union and the United States.
Internal dynamics, external
consequences
Much of Turkey’s recent evolution,
including the AKP ascendancy (Turkey’s
ruling Justice and Development Party),
has occurred against a backdrop of
high growth rates—among the highest
in the Ogranisation for Economic Co-
operation and Development (OECD) at
roughly 6-7 percent per year since 2002.
High growth has been accompanied
and supported by dramatic increases
in foreign investment of all kinds. The
revival of Turkey’s real economy, and
especially the fortunes of small- and
medium-sized enterprises in the years
since 2000-2001, has played a role in the
social transformation of the country, fu-
eling prosperity in Anatolia, and chang-
ing patterns of power and influence in
diverse sectors. The influx of foreign
*
Dr. Ian O. Lesser is a senior transatlantic fellow with the German Marshall Fund of the United States (GMF). The views expressed
here are those of the author and do not necessarily represent the views of GMF.
cash has also fueled a real estate boom
and put Turkey’s middle class under
pressure. More visible wealth has raised
awareness of Turkey’s growing income
distribution gap, and has put ques-
tions of social cohesion on the political
agenda.
A few months ago, many Turks were
optimistic about the country’s ability
to “decouple” itself from the deepening
crisis on Wall Street. Today, observers of
the Turkish scene are far less sanguine
about the prospects for emerging
economies, including Turkey. Growth
rates of 4 percent now seem optimistic.
Two and 3 percent might be closer to
the mark, and well short of what is
needed for job creation and revenue.
Turkish exporters are especially
vulnerable to the effects of a serious
recession in Europe, and other facets
of the economy will suffer if the recent
surge of foreign capital turns to a trickle.
Lower energy prices could work in
Turkey’s favor, but a sharp drop in oil
and gas revenues coupled with financial
turmoil, could mean far less money
flowing to Turkey from Russia and the
Gulf. Under these conditions, the trend
toward closer Turkish commercial and
political ties with Eurasia and the Middle
East may not be sustainable.
A recession—or worse—in Turkey could
also spell trouble for the AKP as it seeks
to maintain its dominant political posi-
Analysis
tion. The government will surely hope that it does not need to
reach for IMF assistance, and the public spending scrutiny this
would bring, before it needs to face local elections in March.
In this and other ways, the populist dimension of AKP poli-
tics would be greatly complicated by economic crisis and
external financial intervention. More broadly, in Turkey and
elsewhere, economic trouble is also likely to reinforce the
nationalist element in Turkish society and politics. The AKP
can play the nationalist card, but opposition parties on the
left and the right may be more adept at this game—if they
can offer a viable alternative to AKP leadership. So far, there
is little sign that either the Republican’s People Party (CHP)
or the Nationalist Movement Party (MHP) are capable of
threatening the Erdoğan government’s lock on mass politics
in Turkey. The AKP will almost certainly face the coming
economic stress in power, but may well move further to em-
brace the nationalist discourse, and this will not bode well
for relations with Europe or the United States.
A more reluctant Europe, a more assertive Russia
Turkey’s EU candidacy is already troubled, with little prospect
of improvement in the near term. A deep and prolonged
recession in Europe could further complicate Turkish
relations with Europe. Job losses and financial stress in
Europe could reinforce existing concerns over immigration
and the costs of future large-scale enlargements. A poorer
Europe may also be a more xenophobic Europe, with
obvious and negative implications for Turkey’s European
aspirations. Even those European politicians willing to
exercise leadership on Ankara’s behalf may find themselves
distracted by more pressing economic and social challenges.
The business constituency for Turkey may be similarly
distracted and limited in its ability to make the case for
completing Turkey’s European project. An atmosphere of
heightened nationalism on all sides will also make a Cyprus
settlement much more difficult, and ultimately, this is a sine
qua non for progress toward full membership.
Turkey’s close commercial and energy security relation-
ship with Russia gives Ankara a special stake in the future
of Russia’s regional posture and the character of Moscow’s
relations with the West. Lower energy prices and a brittle
financial scene—even financial collapse—could well ac-
celerate Russia’s shift to a more nationalistic and adversarial
strategy. Turkey may not be the first target of this approach,
but Turkish interests will inevitably be affected, and Ankara
could face more uncomfortable choices of the kind posed
2
by the Georgia crisis of August 2008. At the same time, the
non-energy component of the economic relationship could
contract, weakening the constituency for cooperation on
both sides and increasing the relative weight of more con-
tentious issues.
U.S.-Turkish relations
The change of leadership in Washington offers an opportu-
nity for a change of course in U.S.-Turkish relations. There
will be a chance to repair at least some of the damage in-
flicted by the Iraq experience and the more general climate
of friction and mistrust that has characterized the bilateral
relationship in recent years. But here, too, the economic
crisis could interfere with progress in U.S.-Turkish relations
in several respects. First, the extraordinary nature of the
economic challenge will make it very difficult for Ankara
(and others) to get the attention of American policymakers.
To be sure, Turkish cooperation will be essential on Iraq.
Turkey’s rotating seat on the UN Security Council will make
Ankara an even more important partner in dealing with
Iran and other questions. Russia policy will also be a key
topic for discussion. The list of issues for bilateral discus-
sion is long. But the outlook for developing new and more
imaginative approaches to U.S.-Turkish relations will not be
helped by competing domestic demands on all sides.
“The change of leadership in
Washington offers an opportunity
for a change of course in U.S.-
Turkish relations. ”
Second, the crisis is already complicating the task of diversi-
fying a relationship that has always been dominated by de-
fense and regional security issues. In recent years, there has
been considerable movement in this direction as American
investors acquired a greater interest in Turkey as a promis-
ing emerging market (and with the prospects of further
convergence with EU practices, however slow). Wall Street
has been among the leading supporters of closer relations
even as strategic constituencies in Washington debated the
“loss” of Turkey. The collapse of key financial institutions
has changed the equation dramatically. Emerging markets
Analysis

in general are feeling the effects of a flight from risk, and

there is no shortage of perceived commercial and political Dr. Ian O. Lesser, Senior Transatlantic Fellow, GMF
risk on the Turkish scene. Moreover, as governments take
Dr. Lesser is a GMF senior transatlantic fellow in Washington, DC,
larger stakes in troubled banks, they are likely to demand
where he focuses on Mediterranean affairs, Turkey, and international
even more risk-averse investment strategies, with an em-
security issues. Prior to joining GMF, he was a public policy scholar
phasis on national over international investments. The
at the Woodrow Wilson International Center for Scholars. Dr. Lesser
outlook for American economic engagement in Turkey now
is also president of Mediterranean Advisors, LLC, a consultancy
looks far less robust.
specializing in geopolitical risk.

Third, economic stringency will cast the budgetary and About GMF
policy costs of the American presence in Iraq in even
The German Marshall Fund of the United States (GMF) is a nonpar-
sharper relief. The Obama administration comes into office
tisan American public policy and grantmaking institution dedicated
with a clear commitment to an early withdrawal of military
to promoting greater cooperation and understanding between North
forces. Many observers now believe that the timetable for
America and Europe. Founded in 1972 through a gift from Germany, on
this could well be accelerated, making the need for U.S.-
the 25th anniversary of the Marshall Plan, as a permanent memorial to
Turkish coordination on Iraq even more urgent. This could
Marshall Plan assistance, GMF maintains a strong presence on both sides
be an opportunity to reshape a troubled pattern of relations
of the Atlantic. In addition to its headquarters in Washington, DC, GMF
over Northern Iraq, the Kurdistan Workers Party (PKK) and
has seven offices in Europe: Berlin, Bratislava, Paris, Brussels, Belgrade,
longer-term stability on Turkey’s borders. But the stakes will
Ankara, and Bucharest.
be high and the window for a serious dialogue on managed
disengagement will not be open indefinitely.

Global consequences

Finally, a protracted economic crisis could have a num-

ber of systemic consequences, none favorable to Turkish
prosperity and security. A global retreat to protectionism
and calls for the re-nationalization of trade and investment
policies will work against the interests of a Turkish economy
that has grown more comfortable with globalization in
its various forms. The projection of Turkey’s soft power
—central to Ankara’s external strategy under AKP—may be
less effective and less well received when Turkey’s old and
new partners are under economic stress. In the worst case,
Turkey and others could confront a post-modern version
of the “interwar scenario”—a slow moving deterioration of
economic, political, and ultimately strategic relationships
in which hard power becomes the leading currency. Well
short of this, states under economic and social stress have a
tendency to behave badly—a tendency that could jeopardize
stability in Turkey’s neighborhood and impede the reinvig-
oration of relations with Europe and the United States just
as Ankara’s need for strategic reassurance becomes more
acute.