December 16, 2014, FT.com
The Turkish lira hit an all-time low against the dollar on Monday, after President Recep Tayyip Erdogan traded barbs with the EU over Turkey’s detention of high profile media figures.
The currency weakened below TL2.39 to the dollar — a 4 per cent fall on the day and past lows previously charted in January, before recovering marginally to TL2.376 in late evening trading.
“As we take such steps [as the arrests], we are not concerned about what the EU would say [or] if it accepts us or not,” Mr Erdogan said in response to EU criticism that the raids violated European values. “We can lift ourselves up on our own; please keep your advice for yourself.”
The International Monetary Fund and other international organisations have long warned that the Turkish economy is vulnerable to external and internal shocks – and to a fall in foreign financing.
Because of its substantial current account deficit and the lack of a lira-denominated long-term debt market, the country — notably the corporate sector — needs more than $200bn of foreign financing a year, more than a quarter of gross domestic wwwuct, to maintain its current level of growth.
Ozgur Altug, an economist at BGC Partners in Istanbul, said that the detentions and reaction to them were likely to have played a role, together with general emerging market weakness, in the lira’s fall.
Mr Erdogan was speaking amid broad international criticism — from the US, the Council of Europe and several non-governmental organisations — over the detention on Sunday of the editor of Turkey’s top-selling newspaper and the head of a television network.
The arrests were the latest front in the furious battle between the Turkish leader and the movement of Fethullah Gulen, an Islamic ally-turned-enemy with whom both the targeted media outlets are affiliated.
In a statement issued on Sunday by Federica Mogherini, the EU foreign policy chief, and Johannes Hahn, the bloc’s enlargement commissioner, the EU had labelled the arrests “incompatible with the freedom of media, which is a core principle of democracy”, and added that “any further step towards [EU] accession . . . depends on the full respect for the rule of law and fundamental rights”.
Although Turkey’s EU membership bid has been all-but-moribund for several years, neither side wants to suspend the process formally and the crisis in the Middle East has increased EU trade as a percentage of Turkey’s total commerce, confirming the bloc as Ankara’s biggest trading partner by far.
The EU also accounts for over three quarters of foreign direct investment in Turkey.
EU leaders are keen to maintain ties with Ankara, not least to bolster co-operation on the crisis in Syria and to counter the rise of the jihadi Islamic State of Iraq and the Levant, known as Isis. Brussels officials still hope to open a new negotiating chapter with Ankara next year, covering economic and monetary policy, an area France had previously blocked.
But officials may face a challenge in keeping such an initiative separate from the response to Turkey’s arrest of media figures.
Ms Mogherini said on Monday she was very surprised by Mr Erdogan’s remarks as she had sensed a renewed appetite for engagement with the EU on a trip to Ankara last week.
“It was members of the government that were telling that us the EU path for Turkey was not so much about economic interests as about values and principles, starting from democracy and rule of law,” she said.
“And so I believe that it is in the Turkish interest, first of all, to be consistent with this commitment.”