Turkey faces growing global risks without a government

We have entered a period in the economy where risks have increased and markets will be full of volatilities. Several developments that will influence global markets are currently taking place, like the crisis in Greece. Domestic political developments also seem to be set on multiplying the dimensions of fluctuations in Turkish markets.

Greece is in the midst of the biggest economic crisis in its history. The biggest difference of this crisis is the fact that it is leading to a eurozone crisis at the same time. 

Athens has decided to hold a referendum on June 5, to decide on the offers of its creditors that it finds hard to agree on. At the same time, it wants to prevent a meltdown in the banking sector by introducing limits to capital movements until June 7. But while it is trying to improve the situation, there is a strong danger of a Greek default.

That’s why while the fluctuation in the euro-dollar parity is increasing, and serious developments are expected in the European bond markets.

In sum, partly due to the Greek crisis there is less appetite to take risks in the global financial system.

As is often the case in such situations, gold prices - as a safe harbor - are increasing, while the currencies of emerging markets are on a downward trend due to the decrease in risk appetite.

In addition comes China’s lowering of interest rates, in an attempt to support growth.

Global developments are important factors that are closely affecting Turkey. A fluctuating tendency tied to these developments seems unavoidable for some time. 

Coalition and the problems in Syria

In addition, there are also risks that are specific to Turkey. Amid ongoing talks about coalition possibilities, the fact that no party has yet been tasked with forming a coalition leads to the continuation of uncertainty. Formal coalition negotiations due to start and the news circulating about it will unavoidably feed the fluctuation tendency in the markets. 

Meanwhile, there is increasing speculation about President Recep Tayyip Erdoğan’s apparent intention to take Turkey to new elections.

The news that Erdoğan and the government have asked the military to intervene in Syria is coupled with this election scenario, which results in growing anxiety in the markets.

This way or that, if Turkey is caught without a government when the U.S. Federal Reserve hikes interest rates, (expected by the end of the year), its work will be made even harder.

Going to elections at a time when there is an exit of hot money will similarly increase the risks. Also, let’s not forget the possibility of Moody’s deciding to lower Turkey’s credit rating in August.

Amid all this uncertainty, the possibility of Turkey entering into a hot conflict across the border only adds to the worst case scenarios.

Let’s hope the ruling elites will not slide Turkey into an adventure that will have further negative repercussions on the economy.

The best solution for the Turkish economy seems to be to form a coalition government as soon as possible.