Would you like the ECB to impose conditions on Turkey as it may do in the case with Italy, saying “I will purchase your bonds, but you will increase your tax revenues.”?

By the end of 2004, the European Union (EU) had defined the conditions for opening Turkey’s accession negotiation, which was an important development for the Turkish economy. It was thought that this perspective would help Turkey to maintain the macroeconomic stability ensured as a result of massive efforts following the 2001 crisis. More importantly, it was hoped that the accession negotiations with the EU and the institutional adjustments to be introduced thereby would contribute to the improvement of Turkey’s potential growth rate, which was expected to enable the convergence with rich economies.

However, the counterparty of the EU negotiation process, which Turkey considered as an anchor for sustaining stability and moving up to the league of rich countries, is currently in a squeeze. Naturally, countries or country groups might occasionally face such circumstances and overcome the challenges by taking the right steps after a certain period of suffering. The EU, however, is in deep trouble. It lacks the institutional mechanism needed to overcome the challenge. The Eurozone has monetary union, not fiscal union. The chief weakness expert economists had highlighted years ago is also the chief reason of the Eurozone’s suffering. 

Many experts state that the European Central Bank (ECB) is the only party that can prevent the spread of the fire throughout the Eurozone. They suggest that the ECB should purchase the bonds of Italy (and other countries in a similar position), which people want to dispose of with panic, that is, which are not demanded and therefore the prices of which fall (interest imposed on which increase) continuously. This way, they argue, the hike of the interest on these bonds will be prevented and Italy will breathe a sigh of relief, selling new bonds to generate resources to pay its due debts with lower interest rates. Of course, experts are aware that this is not a permanent solution. But, time is needed to elaborate on, negotiate, agree on and implement a permanent solution. Although the fact that the chances of the weak EU leaders to come up with such solution is low given their performance until today, the necessary time can be saved only by preventing the spread of the fire. This is why everyone is hoping the ECB’s help.

On the other hand, Nordic countries in particular oppose to this option. Their representatives at the ECB argue that such an intervention will be illegal (for example, the representative of Holland made remarks in this line yesterday). In short, there again is an institutional problem and it does not seem to be one that can be overcome with a “let’s come together and eliminate this problem” approach. Besides, some member countries, Germany, Holland and Belgium in particular, oppose to this option. In short, the problem is not of words but of deeds. 

And take a look at the political developments Greece has been facing lately. The determinant role of Merkel and Sarkozy in these developments is evident, particularly in the case with Greece. Isn’t it? Imagine Turkey facing such a trouble. Would you like it? 

Finally, please note these remarks: Some argue that if intervenes, the ECB should impose certain conditions for particular member countries. For instance, they maintain that the ECB should say to Italy, “I will save you time by purchasing your sovereign bonds on the condition that you take the following fiscal policy measures immediately: You will increase tax revenues until this time and reduce budget expenditures until that time.” Would you like the ECB technocrats to impose such conditions on your economy?

So, isn’t it the time to ask ourselves once again: “Which EU do you want to join?”

This commentary was published in Radikal daily on 12.11.2011