Stability in Turkey – Erdogan style

Turkey has gone to the vote. Recep Tayyip Erdogan has won nearly 53% of almost all the votes counted until now and can therefore continue to reside in the presidential palace in Ankara. His AKP may have failed to achieve the absolute majority in parliament it had been targeting, but together with the election alliance partner, the nationalist MHP, the parties supporting Erdogan have achieved a voting share of well over 53%. This means that the current and new president can rely on a stable majority in parliament. Somewhat surprisingly, the largest opposition parties combined only 45.7% of the votes.

The outcome of the election is entirely in Erdogan’s interest. In combination with the constitutional reform approved by the Turkish people last year and which gives the president far greater powers and limits the importance of parliament, he can be said to have achieved his long-term political goal. The fact that the opposition doubts the election commission’s figures and talks of manipulation will most likely go relatively unnoticed.

The Turkish lira will benefit from the outcome of the elections, having already temporarily appreciated by just under 3% against the euro and the US dollar this morning. The Turkish stock markets also chalked up significant gains in an initial response. The majority of investors evidently prefer the prospect of an Erdogan-style stability to an opposition victory which would have signalled a period of political uncertainty.

However, the election result will not bring about a change in the difficult fundamental conditions in Turkey. Inflation is still clearly too high and the economic risks have risen noticeably in recent months. Furthermore, President Erdogan defended some very bold economic policies in his election campaign, announcing among other things that he would increasingly take control of monetary policy following the election. Whether and to what extent the lira’s rally will prove sustainable or even signal the starting point for further appreciation remains to be seen. After all, compared with the level at the end of last year, the lira has still depreciated by about 15% against the euro. Given the economic challenges still facing the country, we in any case see little cause for exuberant optimism in the national currency at this juncture.

 

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