Turkey was one of the recognised candidates of the European Union (EU) since 1999, however in 2002; European Council had announced that they would consider Turkey’s case for further negotiations without any delay if they met the Copenhagen criteria (Acemoglu & Ucer, 2015). Turkey being a small yet dynamic economy, has a strong case to be considered by the EU council, however problem of illegal immigration and dwindling situation of the country’s economy is one of the major barrier in the case of Turkish accession to the EU (Togan, 2015). This essay is focused to discuss the various economic impact of Turkish accession into the European Union with special attention towards the interest and inflation rate of the country. Besides this, the essay will put light on the facts like trade issues and currency evaluation of Turkey once it integrate itself with EU and adopt the Euro as the standard currency.
Economic consideration – Turkey is one of the largest nations that have large number of population. With 82.1billion of population, Turkey will be the largest nation in the EU and it will increase the average population of EU to 567842 from 485692 (Sonmez, Akgüngör & Bekta?, 2017). This large population of Turkey will certainly act as a boost to the EU economy and it will attract more financial assistance from the various financial institutes. Considering the Gross Domestic Product (GDP) front, if Turkey joins the EU, then it will be more beneficial for the country because it is estimated that it will enhance the rate of growth of Turkey from present 1.9% per annum to 2.9% annually (Ozturk & Arisoy, 2016). One of the main reasons of this rise in GDP growth is demand of Turkish product from the other nations of the EU and inflow of foreign investment. In spite of being a large nation with a considerable amount of population, Turkey has failed to achieve much growth during the financial crisis in 2001.
Figure 1: Macroeconomic situation of Turkey
Source: (Acemoglu & Ucer, 2015)
As the figure 1 shows, according to the 2002 data, country has 7.8% of real GDP growth in addition it has high amount of inflation of 45% (Acemoglu & Ucer, 2015). Besides this balance of budget was negatively relate to GDP meaning the international trade was not good enough in the case of Turkey.
Figure 2: GDP of EU and Turkey
Source: (Acemoglu & Ucer, 2015)
According to the figure 2, Turkey has 191711.3 million Euro of GDP at Current Price; however, per head GDP is 5920 million Euros, which is much lower than the other nations of EU (Bown, 2014). In terms of GDP per head, Turkey enjoys only 1.99% share of total EU GDP, which is much lower than the average percentage share of the New EU10 (Acemoglu & Ucer, 2015). This figure clearly shows that, though Turkey is one of the largest nations in the EU region, it has not developed yet and its economy is as bigger as the Poland.
Effect on banking system – According to Sunderam, (2014) banking system is essential for the growth of any economy and when it comes to the Turkey, then its banking system is going through a transition phase to become the supporting pillar of future growth. Turkish banking system is mainly controlled by the foreign and private banks, which tries to gain the financial stability for the country, however, in the recent years it has been found that political influence over the banking system has crippled the economy to some extent and resulted in instability in the market (Assaf, Matousek & Tsionas, 2013). Once the Turkey joins the EU, it has to realign its banking structure according to the Copenhagen. During the last two decades, Turkey has changed its banking system largely; from altering the lending mechanism to debt, management has been altered largely to manage the growth of balance trade in favour of the country.
According to the Lin, (2014) debt amount of Turkey is around 40 billion Euros since 1963 and it has occurred to the significant amount of capital flight in the country. Most of the debt of the Turkey is government debt from IMF and it has lead to the exceptionally high interest rate. Accession with EU of Turkey will allow the country to lower its public debt along with the reduction in interest rate as the export will rise and foreign investment will rise.
Trade and capital flight – Turkey has gone through the financial crisis in 2001 and it has cripples the country’s economy (Sensoy, 2014). Slow growth in the GDP and instability in the market is one of the main concerns for the EU before it grants the fulltime membership to the country. According to the Copenhagen, EU candidate countries need to have a functioning market and it need to be able to cope with the internal market of the union. When it comes to Turkey, then its economy is highly vulnerable towards the fluctuations of exchange rate and market sentiment. Accession of Turkey into the EU will lead to the devaluation of the country’s currency, which will result to a rise in export in favour of Turkey. This rise in export will aid the country to maintain its balance of trade. According to the Engelbert, Bektasoglu & Brockmeier, (2014) empirical evidence has shown that Turkey enjoys 3.47% of exports of its total trade with EU nations, whereas its import share is 2.96% from the EU25 groups. If the country becomes successful to connect itself with the EU, then it will allow Turkey to gain much higher access into the EU market, which will certainly aids its trade balance.
Once Turkey joins the EU, it has to adopt Euro as their standard currency, which is another debateable question. At present 1 Euro is same as 4.67 Turkish Lira and if the Turkish accession becomes successful, then it have to devaluate its currency leading to fall in import and rise in export, which will enhance the balance of trade situation in favour of the Turkey (Erdogan & Goksu, 2014).
Economic outlook – Turkey is one of the promising nations that share its boundary with the Asian countries as well as EU countries. Though it has a large number of populations, several crises in its economy have lead to dismantling situation for the country. 30% of the total population of the country is under the age group of 15 and more than 20% lies within the 15-24 years age group, which makes the country potential for growth in secondary and tertiary sectors (Akdeniz et al., 2014). Integration of Turkey with the EU will infuse better schools and higher educational institutions, resulting in lower skill gap. According to data, Turkey has 45.6% employment rate, which is lower than the average EU rate of 62.8% making it one of the countries in the EU27 that can transform itself into an efficient country. Higher youth unemployment rate coupled with high influence of agricultural sector making the Turkey’s economy face crisis, which can only be bridged through a big push.
This essay has discussed the potential economic impact of Turkish accession into the European Union. Though the realisation of the actual effect of the inclusion of Turkey into the EU can only be achieved once the accession takes place completely, however the above analysis has envisaged that it will better off the Turkey’s economy. Moreover, the analysis done above have evaluated that the EU wants to integrate Turkey into the consortium because it wants to abolish the religious barriers and promote consolidation of freedom and peace. To conclude it can be said that if Turkey wants to boost its economy by enhancing the employment, production and trade balance, then joining EU can be proved helpful.
Reference:
Acemoglu, D., & Ucer, M. (2015). The ups and downs of Turkish growth, 2002-2015: Political dynamics, the European Union and the institutional slide (No. w21608). National Bureau of Economic Research.
Acemoglu, D., & Ucer, M. (2015). The ups and downs of Turkish growth, 2002-2015: Political dynamics, the European Union and the institutional slide (No. w21608). National Bureau of Economic Research.
Akdeniz, D., Tuncer, B. S., Kilic, S., Sukruoglu, O., Kilic, L., Altundag, K., … & Saip, P. (2014). Distribution and frequency of BRCA gene mutations in Turkish population including Balkan Turks.
Assaf, A. G., Matousek, R., & Tsionas, E. G. (2013). Turkish bank efficiency: Bayesian estimation with undesirable outputs. Journal of Banking & Finance, 37(2), 506-517.
Bown, C. P. (2014). Trade Policy Flexibilities and Turkey: Tariffs, Anti?dumping, Safeguards and WTO Dispute Settlement. The World Economy, 37(2), 193-218.
Engelbert, T., Bektasoglu, B., & Brockmeier, M. (2014). Moving toward the EU or the Middle East? An assessment of alternative Turkish foreign policies utilizing the GTAP framework. Food Policy, 47, 46-61.
Erdogan, O., & Goksu, A. (2014). Forecasting Euro and Turkish Lira Exchange Rates with Artificial Neural Networks (ANN). International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(4), 307-316.
Lin, M. Y. (2014). The Sustainability of External Debt in OECD Countries: Evidence from Quantile Autoregression. Research in World Economy, 5(2), 31.
Ozturk, I., & Arisoy, I. (2016). An estimation of crude oil import demand in Turkey: Evidence from time-varying parameters approach. Energy Policy, 99, 174-179.
Sensoy, A., Soytas, U., Yildirim, I., & Hacihasanoglu, E. (2014). Dynamic relationship between Turkey and European countries during the global financial crisis. Economic Modelling, 40, 290-298.
Sonmez, M., Akgüngör, A. P., & Bekta?, S. (2017). Estimating transportation energy demand in Turkey using the artificial bee colony algorithm. Energy, 122, 301-310.
Sunderam, A. (2014). Money creation and the shadow banking system. The Review of Financial Studies, 28(4), 939-977.
Togan, S., 2015. The EU-Turkey customs union: a model for future Euro-Med integration. In Economic and Social Development of the Southern and Eastern Mediterranean Countries (pp. 37-48). Springer International Publishing.
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