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What if Turkey collapses from lira crisis? Iran, Russia, Syria are waiting

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Turkey mapGoogle

  • Lots of things are going wrong in Turkey, all at once,
    driven by the collapse of its currency, the lira.
  • The West needs Turkey to be strong: Turkey is a
    physical buffer between Europe and the war in Syria.
  • US sanctions have annoyed Turkish president
    Erdoğan, who says he is now in search of “new
    friends.”
  • The worst-case scenario? Potential “new friends”
    include Iran, Syria, and Russia — Turkey’s neighbours, who also
    suffer from US sanctions.

What if Turkey collapses?

It’s not outside the realm of possibility.
Turkey’s currency is in freefall
. Inflation is at 15% and
climbing. Its economy could enter a recession. The US has imposed
economic sanctions on the country because President
Erdoğan refuses to hand over an American
preacher who has been jailed there.

Lots of things are going wrong in Turkey, all at once.

As this map shows,
Turkey may not be important economically
— in terms of
contagion to the rest of the global economy — but it sure is
important strategically and militarily.

Turkey is the bridge between the democratic, peaceful West and
the war-ridden dictatorships of the East.

How strong do we want this wall to be? 

Turkey is the thing that physically prevents the wars
in the Middle East from rolling into Greece

If you are not confident about where Turkey is on the map, you
are not alone. It’s only when you see Turkey’s borders that you
realise why everyone is freaking out about the lira crisis.

On its Western flank, Turkey borders Greece and Bulgaria,
Western-facing nations who are both members of the European
Union. A few years ago, Turkey — a member of NATO — was preparing
the join Europe as a full member.

Turkey’s other borders face six countries: Georgia, Iran, Iraq
and Syria, Armenia, and Nakhchivan, a territory affiliated to
Azerbaijan. Five of those are currently involved in ongoing armed
conflicts or outright wars.

Turkey is the thing that has physically prevented ISIS from
rolling into Greece. It keeps the Syrian war inside
Syria. It prevents the Russians from rolling back into
Bulgaria. And it deters the Iraqis, Iranians and Kurds
from escalating their various conflicts northward into Europe.

That’s the reason Turkey has the largest standing army in Europe.
We need Turkey to be strong and stable, in other
words. 

That’s why two recent moves by Erdoğan are so
chilling:

Erdoğan’s economic illiteracy is particularly
worrying



turkey lira


The
lira has lost 45% of its value against the US dollar since the
start of the year.


Yahoo
Finance



From a strategic/military point of view, Erdoğan
“looking for new friends” is worrying. Turkey suddenly has a lot
in common with Iran, Syria, and, across the Black Sea, Russia:
They are all the targets of the US’s renewed economic
sanctions. 

Do we really want Turkey to turn toward Iran, Syria, or Russia?
Because that’s one potential outcome if the West cannot find a
way to keep Erdoğan inside the fold.

In the immediate term,
Erdoğan’s economic illiteracy
is particularly
worrying: Turkey’s biggest, easiest weapon to contain its
crisis is higher interest rates.

In principle, when a central bank raises interest rates, it sells
bonds, taking in currency from those sales, and thus makes its
own money more scarce and more valuable.

High rates would also encourage savers to put money into Turkish
banks.
That is exactly what Turkey needs right now to prevent a run on
its central bank and a wider economic collapse
. And it is the
one tactic Erodğan — bafflingly — doesn’t believe
should be used.

He is condemning his nation to an inflation spiral that will,
unchecked, look like the hyperinflation of the Weimar Republic.

The worst-case scenario: a Turkish government in search of ‘new
friends’ to bail it out 

What is the end game here, if Erdoğan doesn’t
reverse course on interest, or if the US maintains or increases
its sanctions?

The worst-case scenario is a Turkish government that cannot pay
the army that controls its borders, in search of “new friends” to
bail it out. 

Thus the lira continues its plunge.

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