How will 2011 be for Turkey's economy? What will be the determinant factors?

We are on the eve of the year 2011. So it is time for us to think what the new year is about to bring. How will the year 2011 be for Turkey's economy? What can be the determinant factors? I believe that the first factor to take into account is the economic crisis in Europe. The sooner the crisis is solved permanently, the better for Turkey. But can the legislative steps to this end be taken rapidly? I think this is quite unlikely. How can a continent that could put an end to World War I only in 2010 rapidly design and decide on a new framework for the European Union?

Did you know that Germany made the last reparation payment for World War I on October 3, 2010? This implies that it took ninety-one years to legally close the account of a long ended war for Germany. I have just learned this fact. And as soon as I did, I started worrying how in the world they can take and implement the decisions to end the crisis.

Under the Paris Peace Conference of 1919, it was decided that Germany should compensate the damage caused in the countries attacked during the war. In 1921, the amount of reparations to be paid was set at 450 billion dollars. Germany refused to pay the amount during Hitler's term in office. Then a payment plan was made in 1953. In fact, the sum due was paid in 1982, but upon a decision in 1953 interest payments amounting to approximately 150 billion dollars were postponed and it was resolved that they would  become due and payable only after the unification of Germany. But the provision of suspension became inoperable after the unification of Germany and therefore, a new debt due occurred in the 1990s.

So in this context, how shall we asses the crisis in Europe and its implications for Turkey? Here are my initial conclusions: The 2010 economic crisis of Europe has undermined the export recovery, but accelerated the recovery of domestic production through short-term fund flows. The crisis in Europe therefore has enabled artificial fund abundance for the benefit of Turkey. In this context it is also the economic crisis in Europe which gives signs of intensification that severed the current account deficit problem and that turned it into a challenge for the monetary policy. This is not the normal course of events. Here two lines of action appear: First is the possibility of the intensification and prolongation of Europe's economic crisis. In that case, we would have to expect that the recovery in exports would be delayed further, the current account deficit would  expand, the quality of deficit finance would deteriorate further and Turkey would start to look like a country of gradually rising risks.

The second line could appear if the crisis in Europe is solved comprehensively. In that case, should the restructuring of banks at the core increases fund requirement across Europe, artificial fund abundance toward Turkey might cease, which would ease the existing problem.

From this perspective, in the first case, the Central Bank of Turkey will have to develop more creative measures. The Central Bank warns us again as a fog alert. While in the second case the intervention in itself to the core of the system might reduce the amount of fund flows.

I personally agree with the group which thinks that the Central Bank will have to undertake the majority of tasks. We have yet to see new developments.

This commentary was published in Radikal daily on 28.12.2010