Babacan warns EU of long-term recession risk

ISTANBUL - Hürriyet Daily News

Heavy regulations may kill growth prospects in the European Union, Deputy PM Ali Babacan says in his speech at an event on turning Istanbul a key finance center. DHA photo

European Union countries should act in solidarity, otherwise the region risks a long-term recession, Deputy Prime Minister Ali Babacan said yesterday at a conference, predicting a gloomy outlook for the market Turkey exports to the most.

“No country in the eurozone should be left to its own devices. [The European Union] affords a guarantee to countries when they are accepted into the zone. Otherwise why would they share a currency? It means they will not be left alone when [times are] difficult. Every country has to do what is necessary, and solidarity is a must for the eurozone. If the current situation continues a long-term recession may follow,” Doğan news agency quoted Babacan as saying at the “Building Istanbul as a Key Financial Center” conference, organized by the International Institute of Finance (IIF).

Finance Minister Mehmet Şimşek, IIF Managing Director Charles Dallara, Central Bank Gov. Erdem Başçı and Akbank Chairman Suzan Sabancı Dinçer also participated in the conference.

“People are talking about fiscal consolidation in Europe again. And there are heavy regulations, which may kill the expected growth for a long time. One should be very careful about it,” Babacan said, according to the Anatolia news agency, adding that the cost of bankruptcy for a country is much higher than that of bailing it out.

Turkey expects the new government in France to take steps to ensure the economic stability of Europe and France, Babacan said, as newly elected Socialist François Hollande is expected to replace the outgoing President Nicolas Sarkozy on May 15. There are risks to the French economy if the right steps are not taken, he said. “The eurozone needs a common fiscal framework. 25 leaders have accepted this. Now it should be implemented. Populism brings leaders nothing in the long run. That is why we are experiencing an extraordinary period. Serious leadership is needed to make necessary reforms and take necessary financial steps in many countries.”

Tax concession

While policy makers in many countries see placing high taxes on banks as a way out of the crisis, Turkey is in a much more comfortable situation in this respect, Babacan said. “We expect tax rates to stay low. We will try to lower them as much as the budget affords. This is a very sensitive issue. We have specified some priority areas. There will be new regulations in upcoming years,” he said, adding that the “priority areas” are outlined in the Istanbul Finance Center Strategy document.

Dallara praises Turkey

Turkey’s sound fiscal system and strong banking sector is no coincidence, Dallara said. Building Istanbul up as a financial center was a dream in the past, but the dream has come true today, he said, adding that it was important that authorities in Istanbul and Ankara exerted great effort on this significant project.

Dallara said Turkey’s financial system survived the global recession in a sound way, and the country showed that it would make a great effort to make Istanbul a key financial center. Macroeconomic and structural reforms boosted confidence in the country, he said, adding that important privatization programs have been implemented.

Also speaking at the conference, Akbank Chairman Dinçer said his company has been committed to making Istanbul a sustainable city, while working to turn it into a world finance center. k HDN