Critical Thinking Essay on Turkey's Currency and the European Union

Published: 2021-08-11 09:31:17
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Carnegie Mellon University
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Critical thinking
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Turkeys application to join the European Union has been pending for over a half a century now. However, the prospects of the country joining 27-member bloc have been more realistic now than ever before. Whereas the countrys leadership looks enthusiastic in seeking the EU membership, the same leadership largely remains skeptical about the Euro, the official EU currency (Abbas, 2012). Notably, the EU has probably lost its glorious history, and joining the economic bloc now looks more like benefiting them, which is something unfriendly to any sovereign state. Turkeys feeling is that their entry to the EU and subsequent adoption of the Euro will likely undermine their currency, with widespread repercussions on the entire economy.

The European Union is Turkeys largest trading partner. In 2015, Turkeys export to EU stood at 79 billion Euros, while ranked as the fifth largest trading part to EU; Turkey imported goods from the EU market worth 62 billion euros in the same year (Aytug, Kutuk, Oduncu & Togan, 2016). This figures represented an over 10 percent growth from the previous year, 2014. That is a demonstration of the EU influence in Turkey through trade. A significant portion of the Turkish financial reserves consists of currencies for countries in the EU, giving them a further economic stake in turkey. Other than trade, over 60 percent of foreign direct investments in Turkey are from the EU region. Similarly, over 60 percent of tourists who visit Turkey are from the European Union. At a glance, there is a distinguished trade relationship between Turkey and the EU.

Looking at all those trade partnerships, particularly the volume and depth of the transactions, the entry of Turkey into the European Union will affect the Turkish economy significantly (Carkoglu & Rubin, 2004). Turkey will no longer remain in control of her currency, and the weakening of the euro/dollar exchange will likely harm the countrys business interest both locally and internationally, with limited internal remedies. A weaker currency in the Turkish economy will bring multiple implications. Using a lowly devalued currency will affect the Turkish economy in two channels. The first will be through the EUs massive share in the Turkish economy, and another will be through the role the weaker currency plays in the exchange system. Turkish has before utilized disinflation strategies to address inflation, something which they will no longer remain in control after entering the European Union. The comprehensive program was pitied against a basket of strong currencies which consisted of the US dollar against the Euro, a move credited to have slowed down inflation in Turkey. Turkey will likely receive less on its export due to the weaker currency, a situation which may lead to loss of billions of money generated through trade within the European Union and outside. Those are the cons of Turkey joining the European Union, from currency and trade perspective.

However, Turkey equally stands to benefit from the EU Membership, and that probably explains why they have been receptive to the idea (Grabbe, 2003). The introduction of the Euro into the Turkish economy will eliminate the huge transactions costs on currency exchanges, based on huge trade volumes between turkey and the EU zone which are more than 140 billion Euros as of 2015. Such huge exchanges cost millions in exchanges rates, and this would permanently be eliminated from the trade transactions upon introduction of the euro into the Turkish economy. That will likely improve transactional efficiency and improve the volume of trade. The acceptance of the euro in the Turkish economy is likely to be accepted quicker than it had managed in other member countries, which joined after the formation of the currency. The main reasons for that include the large number Turkish leaving in the European zone, the numerous businesses from the EU operating in the country and the stability of the other major regional currencies. The introduction of the euro will also likely reduce the risks associated with volatile currencies, the Turkish Lira being among them.

The adoption of the convergence criterion is also likely to benefit Turkey. This is a third stage which all EU members are supposed to meet to adopt the euro as their official currency (Grabbe, 2003). That means Turkey will be subjected meeting the conditions sought out in the convergence criterion before being allowed to adopt the euro as an official currency. The criterion demands that countries wishing to join the European Union must become efficient market economies, enabling them to achieve a high degree of verifiability with the union. Some of the conditions of efficient market economies include low market-based interest rates, stable exchange rates, price stability and sustainable public finances. The criterion, judging from its demands, will possibly force the Turkish authorities to be disciplined as long as their economy exists. Turkey has been lagging behind in efforts to stabilize its market prices, interest rates, exchanges rates among many other things, whose entry to EU will force them to address the issues.

Integration of the euro into the Turkish economy, elimination of unnecessary trade and financial transactions, the absence of foreign exchange risk and a more stable market economy will make the Turkish economy an attractive investment hub (Gerhards & Hans, 2011). Apparently, it attracts sizeable individuals from the EU, but joining the bloc will likely alter things, and see the FDIs grow in double digits. Banking on that, big companies between the two regions will likely increase their acquisitions and merger activities. The overall impact of these activities, other than the stabilized market, efficient trade transactions, will also include improved employment rates.

The introduction of the new currency in Turkey will likely shift the countys economic goals posts. It will come with some demerits, but the merits far outweigh the demerits. Turkish membership has been delayed by the presence of Cyprus in the union, a country they do not recognize (Belke, 2004). But in the recent past, they have audible enough that time is due for their membership. They will probably pursue an economical route and disregard their geopolitical wrangles, at least to solve one issue before moving to the next. Internally, it has been executing several economic and financial reforms to conform to the EU standards. That points to a country that recognizes what it stands to benefit by joining the bloc. Despite the issues that have prevented it in the last half a century or so, it will likely join the union in the foreseeable future.

References

Abbas, M. (2012). Frustrated Turkey still wants EU entry, but maybe not euro. [online] U.S. Available at: https://www.reuters.com/article/us-britain-turkey-eu/frustrated-turkey-still-wants-eu-entry-but-maybe-not-euro-idUSBRE91C1E520130213 [Accessed 16 Nov. 2017].

Aytug, H., Kutuk, M., Oduncu, A. and Togan, S. (2016). Twenty Years of the EU-Turkey Customs Union: A Synthetic Control Method Analysis. JCMS: Journal of Common Market Studies, 55(3), pp.419-431.

Belke, A. (2004). Turkey and the EU: Issues and Challenges | 50 Years of Intereconomics. [online] 50years.intereconomics.eu. Available at: https://50years.intereconomics.eu/turkey-and-the-EU-issues-and-challenges.html [Accessed 16 Nov. 2017].

Carkoglu, A., & Rubin, B. (Eds.). (2004). Turkey and the European Union: Domestic politics, economic integration, and international dynamics. Routledge.

Gerhards, J., & Hans, S. (2011). Why not Turkey? Attitudes towards Turkish membership in the EU among citizens in 27 European countries. JCMS: Journal of Common Market Studies, 49(4), 741-766.

Grabbe, H. (2003). Europeanization goes east: power and uncertainty in the EU accession process. The politics of Europeanization, 27(303), 29.

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