For now, there is no connection between what we are witnessing and what Europe is going through. The recent market movement has domestic causes.

There is no need to worry because there is nothing unusual. Because our economy has heated up too quickly, the thermostat system has been activated. The economy will cool down automatically through exchange rate movements. The uncontrolled high growth will slow down. Still, it is wise to maintain the anxiety since a new world will be established with a new price level. In this new world, everyone will earn a share in line with their balance sheets. There is no need to worry; however, there are a number of reasons to be concerned. Let me tell you why.

The current price movements must be read in the context of the function of the thermostat of an automobile. The thermostat is a control system that aims to keep the heat constant at a certain level. A change in the heat influences a sensitive part of the thermostat, activating the heating or the cooling system. It is the thermostat that prevents the burning of the engine by cooling it down. The current account deficit is an indicator of macroeconomic imbalances. It reveals that the economy has been growing at a pace beyond its potential. To overcome this, either the government introduces measures or the situation is remedied automatically. You suddenly witness a price adjustment that will reestablish the equilibrium. In the current case, the long-lasting inertia of the economy administration has left no choice but self-adjustment. It is this price adjustment that the markets are witnessing presently. The problem with self-adjustment is that market adjustment is always overdone and oversized. This is what we should expect this time, too. The adjustment process begins with exchange rate movements and continues with prices and interest rates. In the end, a new equilibrium is reached. Then, everyone takes their new positions, contracts are renewed, some get left out, and life goes on.

Yes, life goes on. But the developments up until then do not go away. When the economy moves from one phase to another, when a new equilibrium is established, both companies and employers also shift to another phase. They are affected by the process. It is hard to change phases. This is what Marx described as "All that is solid melts into air." As the world changes, there will be losers as well as winners. Structural change is like wearing the left shoe on the right foot and vice versa. It is disturbing. Even if you think that you are not in trouble, you are, since the economy always works like combined vessels. Therefore, it is useful to be concerned.

Recently, I was talking to an industrialist friend of mine. He asked what the exchange rates would be. I asked him why it bothered him. "Your sales prices are tied to foreign exchange-denominated, long term contracts, aren't they?" He said, "Yes, but I was called for a meeting by my business partners to renegotiate prices." He explained once again that he had made new investments via FX-denominated loans from Turkish banks and that he had signed FX-denominated contracts to be on the safe side. He added, "I thought I would be safe. But they wanted to renegotiate the contracts at the first opportunity." Such is the relation of the Anatolian SMEs with large companies. The power is allocated unequally. This is exactly what I meant when I said that a new world order would be established and new positions would be taken.

Then, where is the problem? The problem is that the government does not have a transparent policy framework. There is no way you can understand what the government is doing. The Medium Term Program has been obsolete for some time. The available figures have lost their meaning. In such a milieu, telling fortunes is the only way for investors to foresee what to do. This is what I meant when I said, "the equilibrium will eventually be established. But meanwhile, the resources of industrialists will be wasted." Bureaucrats and politicians have nothing to worry about. They do not assume any responsibility. This is the only reason for the current circumstances.

Is there any connection between what we are witnessing and what Europe is going through? For now, no. The recent market movement has domestic causes. Is this a good thing? The movement from disequilibrium to equilibrium is something good if the administration starts fulfilling its role. Nevertheless, we have enough reason not to expect any action from the administrators, who have been playing with fire for long. What is of importance here? It is the pace of adjustment. So far, it appears that it will be sudden rather than gradual. Rapid adjustment intensifies the loss in transition.

There is no need to worry because there is nothing unusual. However, there are a number of reasons to be concerned.

This commentary was published in Radikal daily on 26.07.2011