An important detail in the Turkish currency crisis

Let’s be frank: The Turkish Lira was already heading toward a crisis, but statements by United States President Donald Trump’s statements heated up the crisis further and accelerated its decline. 

The night of Sunday, Aug. 12 was almost a nightmare for the depreciation of the Turkish Lira against the U.S. dollar and the euro. Following a report quoting President Recep Tayyip Erdoğan about “plans B and C” if industrialists would rush to banks to withdraw their dollars, the lira hit its lowest-ever value of 7.22 as soon as the New Zealand, Australian, and then Asian markets opened due to time difference. After Treasury and Finance Minister Berat Albayrak’s statements on Aug. 10 about a “new approach,” Erdoğan’s words were considered as if they signaled freezing foreign currency deposits in the banks.

A possible market crash was averted when Albayrak denied that possibility to Hürriyet’s Editor-in-Chief Vahap Munyar, who stopped the fall before midnight. That was seconded by the Turkish Central Bank, which announced in the early hours of the day that it was ready to provide liquidity, in terms of the lira, currency and gold to all demanding banks. In a tweet, Erdoğan’s communications director Fahrettin Altun said Erdoğan had not meant the seizure of foreign currency in bank accounts and that had been a misinterpretation. The Istanbul Prosecutors Office said probes were opened against social media accounts, which broadcast fake news threatening the “economic security” of Turkey, according to the Capital Markets Law.

In the meantime, Adnan Bali, the general manager of Turkey’s largest bank, İş Bank, joined live television shows to say there were financial reasons for the fall of the lira but it was not possible to explain the situation in only financial parameters. He said he also suspected a politically motivated operation on the Turkish economy. That was an assuring effect on the markets, since Bali has been known as a “no-nonsense” and reliable economist. Opposition parties also made remarks slamming the American stance of “trying to humiliate Turkish nation.” Faik Öztrak, deputy chair of the main opposition Republican People’s Party (CHP), said they criticize Erdoğan’s policies but stand by the Turkish people against attacks by the U.S.

In the afternoon, Erdoğan himself said in a public speech that the seizure of foreign currency deposits was out of the question and that Turkey would stick with the free market economy despite “being under economic siege.”

But more interestingly, there was unexpected support for Turkey from Germany on Aug. 13, after Russia, Italy and Iran voiced support on Aug. 12. German Chancellor Angela Merkel said Germany wants to see Turkey prosper economically, which is in “[Germany’s] interests, too.” She said “no one ... has an interest in an economic destabilization of Turkey, but of course everything must be done so that, for example, an independent central bank can work and so on.”

Erdoğan is expected to pay a visit to Germany in September, and a high ranking German trade and industry delegation is expected to visit Turkey in October for better bonds. There are already more than 7,000 German companies in Turkey.

It is also interesting to see that by talking about the Turkish crisis, world leaders, from Merkel to Russian President Vladimir Putin, are expressing their reactions to U.S. President Donald Trump displaying his power, especially when he is trying to use economic sanctions and tariffs as a political weapon against his country’s economic rivals, including China and the European Union. In the EU, there is an obvious anti-Erdoğan sentiment, but when it comes to Trump’s blows against Erdoğan weakening the Turkish economy, there is an obvious resistance there, too. That is not in support of Erdoğan perhaps, but for the wellbeing of Turkey, which is important for European defense, as voiced clearly by Germany, and European economies, as voiced by Italy.

Trump managed to unite leaders, from Merkel to Putin, in support of Turkey, and banks and opposition parties in Turkey in support of the government against them.