Describe about the Turkeys Currency And The European Union.
The decision of cooperation with regard to Turkey’s attainment of European Union (EU) was continuing since last 50 years in different form of “partnership” between them. The primary part of this negotiation was depended on the increased trade and economic coordination between Turkey and EU. Since 1963, Turkey is been the associate member of EU and officially it was the membership candidate of European Union since 1999. On December 2004, the Council of Europe planned to negotiate with regard to Turkish attainment to the European Union on October 2005. The decision taken by EU motivated intense response all around the political forces and among all the citizens of Europe. The argument related to Turkey’s attainment was very intense as compared to the environment in which the cooperation started.
This paper discusses about the impact of Turkey’s membership into the European Union (EU) on the economy of the country and the impacts on Turkey from the currency’s point of view. The impact of Turkey’s membership into the European Union (EU) on the economy of the country and the EU is still under sudden debate. Turkey is associated with a large number of trade activities with the members of the EU. In fact, Europe is the largest trading partner of Turkey. During the year 1999, 54% of Turkish’s exports and 53% of Turkish’s imports went to and came from the EU countries only. In this context, Cengiz and Hoffmann (2013) stated that around 54% of the Turkey’s official reserves comprises of Euro with eleven currencies and the euro itself. On the other hand, foreign exchange deposits related to workers of Turkey in other nations and those held in the Central Bank of Turkey is estimated to be around 11 billion euros. From the perspectives of debts, the total external debts amounts to around USD 106 billion out of which around 34% are in Euro with 11 currencies and the euros itself. On the other hand, around 60% of the direct foreign investments in Turkey did come from Europe during the past five years. The above data clearly indicates the strong relationship between Turkey and the EU nations & also highlights the role of euro in Turkey.
In the view of Öni? (2014), with regard to the economy of Turkey, considering the width and depth of Turkey’s association with the EU, there is very little doubt that the creation of the European currency and euro would have a strong impact on the Turkish economy in future. If it is assumed that euro as a currency is acceptable to global financial markets as a strong reserve currency then in both long term and medium period in future the share of euro as a currency in the financial accounts of Turkey is likely to increase. Some economists think that the acceptance of euro in both the regular life and monetary transactions in Turkey will come faster in the country compared to other nations. This is mainly because of three major reasons as high number of Turkish citizens staying in Europe, high trade volume & tourism transactions taking place in the Europe and consistency of deutsche mark for over 20 years.The introduction of euro has resulted in the decrease in transaction costs and eliminated the risks associated with volatility of currencies. This further increases the incentives in relation to the capital markets of Europe to depend heavily on direct financing. In addition, an efficient and liquid bond market of euro is expected to be popular among the private bond issuers & Turkish sovereign.
Rising acceptance of the euros in financial transactions and trade in Turkey is combined with an environment of low inflation would make direct investments in the country more attractive to the EU. Rising acceptance of the euros in financial transactions and trade in Turkey however this is combined with an environment of low inflation would make direct investments in the country more attractive to the EU. In this context, Startin and Krouwel (2013) expressed that with the increasing acceptability of euros both European and Turkish banks are expected to raise their merger & acquisition activities.
The success over here would still depend on the acceptance of the new currency by the people of EMU along with other nations. The quicker this acceptance is achieved, higher would be the strength of the euro as a currency in both longer and short-term period. Here, depreciation of the euro against the USD has badly affected the confidence of people in euro (AydIn-Dtizgit and Keyman, 2013).
Here, it is a good time to explain the way in which variability in euro/dollarcurrency rate has impacted the economy of Turkey. A poor valuation of currency euro might impact the economy of Turkey in two major ways. Firstly, because of the role of euro in the new currencysystem of Turkey and secondly, by thehigh share of EU countries in the international trade. During the start of the year 2000, a comprehensive program for disinflation was launched in Turkey on the basis of a pre-declaredroute of the lira as against a specific basket currency which consisted of “1.00 USD + 0.77 Euros” (Bulmer and Lequesne, 2013). This program has been quite successful in the country in reducing the inflation rate. However, fast appreciation of the USD against that of euro as a currency in global markets have somehow badly affected the impact of basket of exchange rate on the rate of inflation. Also, chances of Turkish lira regarding depreciation are quite high as well.
On the other hand, the portfolio in Turkish economy has great impact on EU if the euro is valued at low level. During the end of September of 2000, the total amount of foreign deposits in the commercial banks of Turkey had amounted to around USD 43 billion out of which around 27% comprises of euros which had already reduced in value by 38.5% since the end of 1998 (Keyman and Içduygu, 2013). However, the share of USD also increased from 558% to 71% during the same period.
The ideal of independent or autonomous central banks is one of the core issues for the nations in the EU. Thus, Turkey is currently examining its own banking regulations to identify the things that need to be done to raise the standards of banking system as promulgated by the European system of central banks (Terzi, 2016). The central bank of Turkey has made price stability as the principle goal of monetary policy at present.
It is recommended for Turkey to introduce a single currency which would allow it to reap complete benefit from this in the long-run. However, at present, Turkey’s currency is mainly concerned with achieving price stability. In this context, Azrout et al. (2013) mentioned that price stability for Turkey can be viewed as a relationship between old expectations associated with euro and potential economic benefit of that could arise from a single currency system.
Geographically also, Istanbul lies at the economic heart of Turkey (Noutcheva and Aydin-Düzgit, 2012). This nation is invaluable to bridge the gap between Europe and Asia. Here, unique geo-strategic position of Turkey along with the strength of NATO army could help Turkey in improving the European security system. The coup in 2016 indicates that Turkey is not still matured in terms of European style democracy as its political system is a tussle between Islamists from various groups and overbearing military. Human rights are badly abused in this nation. These issues could lead to get opposed view from public in the EU regarding its membership in the EU.
On the other hand, Turkey need to consider certain key economic concerns. Its average GDO growth rate is around 3.5% and the nation was also able to sustain the global recession better than many nations in the EU. The public finances of Turkey are envy to that of Southern Europe (Özer, 2016). There has been substantial increase in the per capita income of the country by six fold and in fact on an average, a Turk is much better off than counterparts in Bulgaria and Roman. However, bringing such a dynamo could inject new life to the economy of EU along with adding 75 million customers to the single market.
From the above discussions, it can be concluded that the negation between Turkey and and EU will have considerable impact on its economic condition but it is controllable and it is far less as compared to the enlargement of Eastern European countries. If it is considered that as a currency Euro is acceptable in financial markets globally, as a tough reserve exchange then for long period and short period in future the euro’s share as an exchange in the financial accounts of Turkey is likely to increase. Some economists also feel that the acceptance of euro in monetary transactions of Turkey will come faster in the country compared to other country. It will also facilitate the free trade between Turkey and EU. However, it is advised to introduce a single currency so that stability can be achieved in the currency term and indication of debt can be recovered. Further, it will help to create the freedom factor related to capital, goods, labor and services with few special measures and transitional arrangements.
Reference List:
AydIn-Dtizgit, S. and Keyman, E.F. (2013). EU-Turkey relations and the stagnation of Turkish democracy. Global Turkey in Europe: Political, Economic, and Foreign Policy Dimensions of Turkey’s Evolving Relationship with the EU, 9, 103.
Azrout, R., van Spanje, J. and de Vreese, C. (2013). A threat called Turkey: Perceived religious threat and support for EU entry of Croatia, Switzerland and Turkey. ActaPolitica, 48(1), 2-21.
Bulmer, S. and Lequesne, C. (2013). The member states of the European Union. Oxford University Press.
Cengiz, F. and Hoffmann, L. (2013). Rethinking conditionality: Turkey’s European Union accession and the Kurdish question. JCMS: Journal of Common Market Studies, 51(3), 416-432.
Keyman, F. and Içduygu, A. (2013). Citizenship in a global world: European questions and Turkish experiences. Routledge.
Noutcheva, G. and Aydin-Düzgit, S. (2012). Lost in Europeanisation: The Western Balkans and Turkey. West European Politics, 35(1), 59-78.
Öni?, Z., (2014). Turkey and the Arab revolutions: boundaries of regional power influence in a turbulent Middle East. Mediterranean Politics, 19(2), 203-219.
Özer, Y. (2016). Turkey and the European Union: processes of Europeanisation. Routledge.
Startin, N. and Krouwel, A., (2013). Euroscepticism re?galvanized: The Consequences of the 2005 French and Dutch Rejections of the EU Constitution. JCMS: Journal of Common Market Studies, 51(1), 65-84.
Terzi, Ö. (2016). The influence of the European Union on Turkish foreign Policy. Routledge.
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