Why Turkey is so important for Europe

The country on the Bosporus is not only geopolitically important but also economically: as a tourist destination, trading partner and very important transit country for raw materials. A commentary by Cornelia Meyer.


cornelia_meyerThe failed coup attempt in Turkey brought the country up on the eastern edge of Europe once more into the limelight of world affairs. The reactions in the media to the mass layoffs of Recep Tayyip Erdogan was fierce. Most European politicians expressed their deep concern expressed. Excluding the political consequences of the events in Turkey will attempt to show why the Turkish economy is important to Europe.

Turkey is a typical country in the middle-income category with a growing middle class and a population of 80 million people. Between 2009 and 2014, the economy recorded growth rates of between 4% and 9%. The country reached in 2013 with $ 828 billion the highest gross domestic products (GDP) in its history. Then the economy began to ail – 2015 reached the GDP barely 718 billion $.


Neuralgic Location

What happened? Turkey is in a geopolitically sensitive area between Europe and Asia, in addition to the trouble spots of Syria and Iraq. This was the economy in the last two years undoing: The country took three million refugees from Syria, Iraq and the surrounding areas in what the economy and infrastructure of the country stressed strongly.

Within the past 12 months also took place not less than 12 terrorist attacks, for the IS or the Kurdish rebel group PKK were responsible. The tourism industry, which contributes about 10% to GDP was, thereby greatly impaired. The tourism has shrunk since the summer of 2015 – in May 2016 by 35% alone. The Mediterranean beaches and the hotels are empty. The failed coup will do little to improve the situation. In addition, the tourism sector has been adversely affected by a deterioration in the relationship between Turkey and Russia. Russia was in 2015 with 3.3 million tourists to Germany the second largest country of origin.

The problem lies not only in the tourism sector. The Turkish economy has profound structural problems: The infrastructure needs of the development and the labor market should be more flexible. Industrial exports could achieve a higher value and therefore higher revenue with more innovation.

Turkey is like all countries enormously dependent with current account deficits of the currency. The Turkish lira reached on Tuesday after the coup attempt the lowest point since the currency reform of 2003. Turkey has made a trade deficit of 6.8% of GDP respectively, a current account deficit of 5.2%. The numbers are down only so smoothly thanks to the low oil price. Turkey imports almost 100% of its oil and gas consumption. With rising oil prices is a further deterioration of the trade and current account deficit expected for 2016, which will have serious consequences for the economy.

Another problem is the nepotism, so the widespread cronyism.Turkish society is very traditional, which does have its good points. However, the down side of conservative companies is a classic “cronyism” that may just turn into nepotism.

Stability in Turkey, which can be obtained in the long term only by a prosperous economy, is for Europe of crucial economic and geopolitical importance. Turkey has with its 80 million inhabitants and a growth rate of about 1.3% a large, very young and rapidly growing population. The Turkish GDP represents 1.2% of the global economy. Turkey is next to Saudi Arabia and Indonesia also one of only three Muslim Member States in the G20. Thus, the country is a significant “player” on the international stage.

Turkey is also an important market for European goods. As a trading partner, the country imported goods worth € 73 billion from Europe, primarily in the sectors of mechanical engineering, chemical industry, transport and energy. Well over 40% of all Turkish imports come from Europe.

Moreover, about 5% of global oil production from Russia, Kazakhstan and the Caspian region are transported through Turkey to the West – through the Bosporus or via different pipelines. This share will increase in the coming decades with new planned pipelines and reintegrating Iran into the world economy.The same applies to grain which arrives from the Ukraine, Russia and Kazakhstan through Turkey to Europe, but also in the Middle East.

Turkey also forms the eastern flank of NATO expressed. NATO aircraft bomb from IS positions in Syria and Iraq from NATO’s Incirlik Air Base. This has made Turkey an important ally in the fight against IS. If the IS to be defeated, the cooperation with Turkey is essential.


EU accession in the distant future

The EU has signed in March an agreement with Turkey, in which it has committed itself to keep refugees in their own country and to grant them work permits under certain conditions. In return, Turkey will receive a cash injection of € 3 billion, to better cope with the economic consequences of increasing numbers of refugees in their own country. The endless flow of refugees on the eastern route were significantly weaker in the Agreement. The legal basis of this Agreement, however, was criticized by some human rights organizations.

Without judging on the declaration of Notrechts by Erdogan, the arrests and mass dismissals appear as not proportionate. In Turkey, there are many citizens (in civil society) who spoke out for sharp measures. The markets have been digested difficult developments since 15 July. The rating agencies Standard & Poor’s and Moody’s review their opinion on the country’s economy.Turkey was hardly ever so far from accession negotiations with the EU.


About the authorCornelia Meyer is a British-Swiss economist own consulting firm.She is a member of the Advisory Board of the Istanbul Finance Summit, the most important financial market conference in Turkey.