Turkey will be affected by the crisis as much as Europe, regardless of the future direction of the crisis in the latter.

This is what the cabin crew says when there is turbulence during your flight: “Please do not stand up or unfasten your seatbelts.” For your safety, of course. We are going through a period in which everyone must be more cautious. The decision of Greek President Papandreu to hold a referendum on the economic measures to be applied to Greece has shaken Europe. They are treating Greece like an “ungrateful cat.” You’ve probably been watching the developments, too. Europe expects that if the Greek people say “no” in the referendum, the economy will be affected negatively. The consequence of this for Europe will be even stronger turbulence. This is the first point to state. Turbulence is on the horizon for Turkey, too, but I believe that this time it is not related directly to the future shape of the crisis in Europe. This is the second point. So far, the crisis in Europe has not really had huge adverse impacts on Turkey. Now, however, we are at the beginning of a new period in which Turkey will be affected as much as Europe, regardless of the future direction of the crisis in the latter. The hike in risk perception against Turkey stems from the policies of the Central Bank. The first visible consequence of the Central Bank’s decisions will be a rise in financial instability. The bank is in a tragic position here. And this is the third point to state today: Why do I think that the Bank is in a tragic position? If you are curious, please read on.

In the current state of affairs, the possibility for Turkey to finance its current account deficit trouble-free decreases as the credit ratings of European banks are lowered and thus the cost of funding increases. At the outset, the crisis in Europe in a way caused a savings surplus, which has helped Turkey to finance a high current account deficit despite the loss in exports. The net impact of the crisis on Turkey concerning external finance has been positive. From this point on, however, the net impact of the crisis will be negative. We need to expect negative impacts on both exports and finance opportunities. This will not change regardless of what Greece does.

And let’s get to the main issue: The current developments going on throughout Turkey make me feel as if we are living in a Greek tragedy. Do you remember Greek tragedies? They all have the same structure. At the center is a divine character that sets off for a good purpose. Then, he makes a ridiculous mistake out of hubris. This is why tragedies make people think, “Those whom the gods wish to destroy they first make mad.” Such is the mistake I am talking about. In the chain of occasions, things evolve in the exact opposite of the positive and divine outcome the character sought, because of that ridiculous mistake. The character becomes bad. And we, the audience, watch the tragedy with fear and sadness and draw a lesson. The Central Bank increasingly reminds me of Greek tragedies.

What does a banker do if he cannot estimate the cost of overnight funding? He searches for ways to scale down his balance sheet. What happens in consequence? He sets off to maintain financial stability, but in the end causes financial instability. He aims to prevent negative growth effects, but in the end he impedes growth further. He assumes that inflation will not rise in the given milieu, but causes an increase in inflation.  The question raised in the end is why he has gone to all the trouble to do this when it won't change anything.

So, hear my words:  Do not stand up or unfasten your seatbelts for your safety. Please.

This commentary was published in Radikal daily on 04.11.2011