Turkey's lira crisis puts European economies at risk, says expert
'We are already seeing some signs of contagion,' says Nilgün Önder
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.
I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!—@realDonaldTrump
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.
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.