Turkey and the German Dream

Almost exactly 20 years ago, Kemal Dervis told a group of journalists in Ankara that “in 20 years” Turkey would be one of the two largest economies in Europe along with Federal Germany.

Shortly after that remark, however, Dervis’ brief tenure as Turkey’s “economic miracle worker” in Prime Minister Bulent Ecevit’s government was over. Dervis was not to become the Turkish Ludwig Erhard, the man who shaped West Germany’s post-war economic renaissance, and Ecevit himself quickly picked up his own callback.

Still, at the time, Dervis’ prediction didn’t seem too far-fetched.

The sweeping reforms launched under Turgut Ozal were given a wider reach, helping to curb runaway inflation and attracting the largest influx of foreign direct investment in Turkish history. The corruption that had plagued the state-dominated rentier economy was also brought under control while Dervis’ clever measures saved the banking system from collapse.

So why is Turkey today, with a gross domestic product (GDP) just over half that of Spain, still in the bottom league in Europe?

Today, Turkey is returning to the nightmarish inflation it had sacrificed so much to control. The national currency, the lira, stabilized after long periods of yoyo, is again on a downward slope. For the third consecutive year, Turkey’s foreign trade deficit is increasing at an unprecedented rate while unemployment is also increasing at rates not seen since the 1990s.

To say the least, the Turkish economy is in dire straits; a fact that a stroll through the streets of Istanbul reveals with shops having no or few customers, hotels bringing in fewer bookings, more and more people cycling because they have no unable to afford to refuel, and crowds of job seekers moving through parks and bazaars. The latest Central Bank estimates show that average personal debt is more than 110% of annual income.

Some causes of the current crisis are conjectural. Turkey depends on energy imports at a time when oil and gas prices are soaring. Erhard’s economic miracle in Germany happened when the price of oil was $2.70, the equivalent of $32 in today’s terms. Today, Turkey faces prices well above $100.

At the same time, Turkey, unlike “emerging” economies like Brazil, has few exportable natural resources. Still accounting for 25% of GDP, Turkish agriculture is facing increasing problems in European markets due to tougher regulations and chilling relations with Brussels. When it comes to manufactured exports, the “dumping strategy” adopted under the leadership of Recep Tayyip Erdogan means that Turkish consumers pay a higher price than foreign buyers to cover the cost of state subsidies. This in turn adds to inflationary pressure.

Worse still, part of the income from industrial exports is lodged in foreign banks at a time when the flow of foreign direct investment is becoming scarce. As the global Covid crisis enters its third year, Turkey has also lost a good chunk of its income from foreign tourism. In many places, most foreign tourists are now low-spending Russians trying to get away from the impact of war in Ukraine.

Over the past four years, foreign investment, largely from oil-rich Arab countries, Iran and Russia, has been channeled into real estate projects that create bubbles like the ones that pushed the Spain on the brink in the 1980s.

Interestingly, the Turkish diaspora, estimated at around 12 million people, is reducing remittances and investing less in the former homeland. The bleak economic outlook has encouraged emigration, especially of 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 over 1% of GDP, compared to almost 4% in West Germany when Erhard (the fat one) was in charge of the economy.

However, the current crisis may also have deeper political reasons. In his gratuitous quest for false greatness, President Erdogan has embarked on an adventurous and costly foreign policy. He wasted a lot of money trying to get a top table spot in Libya with a draw.

Another costly chimera involved Turkey in the Transcaucasian conflict, again without any benefit to the Turkish economy. Despite Ankara’s massive support in the war against Armenia, Azerbaijan (Baku) is not even ready to sell oil to Turkey at the same discount that Russia and Iran offer.

Instead of negotiating with Greece for a fair share of newly discovered oil and gas reserves in the Aegean, Erdogan has opted for pseudo-nationalist swordplay that drives away potential investors.

Erdogan also implicated Turkey in glorious but costly posturing in Kosovo, North Macedonia, Bosnia and Herzegovina and Albania, not to mention the decades-long involvement in northern Cyprus that proved to be a mistress more and more expensive but more and more ugly for the pashas. Another ugly but expensive mistress is the Muslim Brotherhood (Ikhwan al-Moslemeen).

Erdogan placed it under Turkish tutelage at the cost of damaging ties with Doha and bribing the Egyptian and Tunisian remnants of the “Brotherhood” leadership.

The takeover of the “Brotherhood” was meant to complete Erdogan’s victory over Fethullah Gülen’s movement, leaving “the Sultan” as the undisputed contender for the leadership of politicized Islam in and around the Mediterranean.

But that’s not all. Erdogan has extended the war that Turkey has waged against the Kurds for almost half a century to parts of Iraq and Syria. For five years, he has been trying to carve out a Turkish glacis in the predominantly Kurdish region of northern Syria. Turkish experts estimate the adventure costs around $10 billion a year, nearly double what Ankara receives from Brussels to keep Syrian refugees away from the EU’s dreamland.

Erdogan’s obsession with getting pieces of Syria and Iraq has prevented Turkey from playing a constructive role in stabilizing its two neighbors one way or another. Meanwhile, corruption at all levels returns with a vengeance reminding many Turks of the late 1990s when Ankara was dubbed a den of thieves.

Erdogan’s apologists claim he has put himself “at the center” of the new geostrategic “big game”. Turkey, they say, remains a member of NATO but also a respected interlocutor for Russia. He 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 whoever tries to sit between two, if not several, chairs risks finding themselves between chairs on the floor.

James R. Rhodes