The Current

Turkey's lira crisis puts European economies at risk, says expert

As the Turkish lira tumbles and the country's president remains defiant in a tariff battle with the U.S., one expert warns the economic stability in Turkey could spread beyond its borders with serious implications.

'We are already seeing some signs of contagion,' says Nilgün Önder

The Turkish lira was around 15 cents US on Monday. It was almost twice that a year ago. (Murad Sezer/Reuters)
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As the Turkish lira tumbles, one expert warns the county's currency crisis could spread beyond its borders, particularly other European economies.

The Turkish lira hit a record low of 7.23 per dollar on Sunday, after President Recep Tayyip Erdogan remained defiant in a standoff against its NATO ally the United States.

"The crisis could have a kind of contagion effect, or ripple effect, through Europe," said Nilgün Önder, an associate professor of politics and international studies at the University of Regina.

"We are already seeing some signs of contagion. Stock markets are feeling the pressure that is likely to affect emerging market economies … [and] currencies have lost some value," she​ told The Current's guest host Laura Lynch.

The lira has dropped some 45 per cent this year. The latest decline was accelerated after U.S. President Donald Trump tweeted that he would double tariffs on Turkish steel and aluminum.

Erdogan has called this fight an "economic war" and has urged citizens to dig out their dollars, euros and gold to cash them in for Turkish lira.

"The Turkish economy had been giving signs of structural chronic weaknesses and imbalances for quite some time," said Önder​.

Instead of authorities addressing structural weaknesses, the government insisted on boosting the Turkish economy by a policy of low interest rates.

"Erdogan believes that you need to keep interest rates low to keep the economy growing and going, but also to keep the inflation rate low which really goes against economic thinking," she explained.

Despite this escalating currency crisis in Turkey, President Recep Tayyip Erdogan has remained defiant in a tariff battle with the U.S. and said the country is fighting a 'economic war.' (Kayhan Ozer/Associated Press)

Turning the crisis around

Önder​ wants the Turkish government to take the current financial crisis more seriously. She suggested a "full-blown crisis" could have been prevented if Turkish authorities took necessary measures.

"President Erdogan keeps referring to an 'economic war' with the United States, putting the blame on some type of foreign conspiracy. All that talk sort of undermines investors confidence in the Turkish economy," she​ said.

But she told Lynch, what could turn things around as far as investors are concerned is German Chancellor Angela Merkel's urging of Turkey to ensure the independence of its central bank at a Monday news conference.

"Germany would like to see an economically prosperous Turkey. This is in our interest," Merkel said at the chancellery in Berlin.​

Önder​ believes Merkel's statement reaffirmed Turkey's importance to Europe, and to the world economy.

"I hope that some of the major European governments are going to follow suit," she said.

Listen to the full discussion near the top of this page.


Written by Lisa Ayuso with files from CBC News. This segment was produced by The Current's Julie Crysler, Donya Ziaee and Noushin Ziafati.

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