Turkey Eyeing EU Economy

Turkish markets reacted with record highs this week when the fight over adultery ended and the EU cracked open the door to accession talks. Turkish companies want to be in the EU, despite ongoing economic difficulties. By Ingun Arnold

"Thank God common sense prevailed," Ömer Sabanci, president of the Turkish Industrialists’ and Businessmen’s Association (TÜSIAD), said. The group had cautionary words as well as praise for Turkish Prime Minister Recep Tayyip Erdogan's decision to continue with social and political reforms.

TÜSIAD, which has long been a supporter of Turkey's bid to join the European Union for social, economic and political reasons, saw not only the political reforms but also the stabilization of Turkey's economy as a success of Erdogan's Justice and Development Party (AKP) after two years in power.

Turkey's perspectives for EU accession increase stability and investor confidence to the country, said Anton Börner, president of the Federation of German Wholesale and Foreign Trade. Turkey has gained control over inflation and developed into a country with a market-based economy and independent central bank, he added.

Still some economic difficulties

The agriculture sector, however, could still pose some problems concerning the EU's current policies in that area. Some see membership talks with Turkey as raising the pressure on the EU to bring an end to its highly subsidized agriculture rules.

"A one-to-one continuation of today's EU agriculture policies until the end of accession negotiations (with Turkey) is not conceivable," Börner said.

EU member states make up about half of Turkey's exports, with Germany being the largest single market. German exports to Turkey also went up to nearly €6 billion ($7.4 billion) in the first half of 2004, an increase of 50 percent.

Turkey's membership in the EU would also bring political advantages to the union. If the bloc succeeded in bringing wealth and democracy to Turkey, it would serve as an example to the rest of the Islamic world and prevent an increase in radical tendencies, Börner said.

Others, including Angela Merkel, head of the German opposition Christian Democratic Union, are more skeptical of Turkey's place in Europe and would rather offer the country a privileged partnership instead of full EU membership.

Risks confront investors in Turkey

Opponents to Turkey's EU accession point out that Erdogan's government has not been successful in stamping out the country's regional inequalities -- 60 percent of all Turkish exports still come from Istanbul and the surrounding area -- and that EU membership would not necessarily mean an increase in foreign investment.

Turkey is also still one of the world's most debt-ridden countries. Without the $16 billion provided by the International Monetary Fund, the country would not have been able get though an economic crisis in 2001. Negotiations over a new three-year contract are already taking place.

The country's trade deficit poses the biggest risk to economic stability. Though Turkish exports increased by 32 percent to $39 billion, imports rose by an even faster 41 percent to $62 billion, leaving the country with a $23 billion hole to fill. Analysts are concerned that this could lead to a new crisis.

Ingun Arnold

More information about Turkey's EU candidacy in our dossier