Originally published at WhoWhatWhy.org
Relations between the US and Turkey — a key American ally and home to NATO’s second-largest army — hit a new low on Friday, with the presidents of both countries rhetorically declaring economic war on each other. And over the course of a single day, the Turkish lira lost 17 percent of its value.
Within hours, early signs of panic spread to world financial markets. A European currency trader, who asked that his name not be published, told WhoWhatWhy on Sunday that he had never seen so much trade and volatility over a weekend, blaming it on the Turkey events.
Most analysts say that fears about a global recession triggered by a Turkish collapse are overblown at this point. According to data analyzed by Bloomberg, markets have priced the probability that the country would default on its sovereign debt in the next five years at about 25 percent. Such a default, far from inevitable right now, could cause trouble in Europe. But it is unlikely that the contagion can spread far enough to trigger a crisis of the magnitude of the 2008 crash.
Still, the feud could have profound implications for US policy in Europe and the Middle East, experts say.
“Turkey could be a lost cause for the West if Russia and China approach the situation opportunistically,” Cenk Sidar of Sidar Global Advisors, a Washington, DC-based strategic advisory firm, told WhoWhatWhy. Turkey, in fact, has already sought Russia’s help.
It has been a dizzying exchange with the occasional element of a spy-movie plot. The disagreements between the two countries run deep. This one started over the fate of an American pastor, Andrew Brunson, jailed in Turkey since 2016 on spying and terror charges.
According to a Washington Post report, President Donald Trump felt cheated in late July after Turkey failed to keep its side of a bargain to free Brunson in exchange for the release of a Turkish woman arrested in Israel for spying.
Within days, his administration imposed sanctions on Turkey’s justice and interior ministers, threatened to unwind Ankara’s duty-free access to the market, and radically increased tariffs, sending the lira into a tailspin.
“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,” Trump tweetedon Friday.
Many in Turkey saw it as adding insult to injury. The tweet came right in the middle of a much anticipated speech by Turkey’s recently appointed finance minister, and son-in-law of the country’s strongman President Recep Tayyip Erdogan. The minister had vainly attempted to reassure investors that he had a “new economic approach” to offer.
“Aluminum will now be 20% and Steel 50%,” Trump added, shocking many analysts. “Our relations with Turkey are not good at this time!”
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