I claim that the European crisis will continue for another decade. They have been in denial for five years, you see.

Europe is important for Turkey. It is our primary trade partner. More than half of Turkey’s exports are still to Europe. True, the share of the Middle East and North Africa in Turkey’s exports is increasing, but the European market in the north is five times as big as the sum of southern and eastern Mediterranean markets. Moreover, the former demands more sophisticated goods. The economic health of Europe is important for Turkey. But the European economy has yet to overcome the global economic crisis of 2008. And it does not seem likely to do so in the coming decade. Let me tell you why I think so.

If you ask me, we heard two pieces of Europe-related news last week. The first was that youth unemployment in Europe is 25 percent. The second was that it has not yet been resolved whether to spare €60 billion for bank recapitalization out of the €500 billion European Stability Mechanism. The first part directly refers to Europe’s growth challenge and the second signifies that the challenge most likely will be around for a long time. At the heart of the growth challenge lies the irresolvable banking crisis. The crisis cannot be solved and the banks cannot support a new phase of growth without recapitalization. Our European fellows have not yet dared to do what Turkey initiated in 2001. If this prevails, the European crisis will continue for another decade.

The crisis started in 2008, but our European friends have not yet given the necessary response. Meanwhile, the Americans have spent about $1 trillion on bank recapitalization. The Europeans are still reluctantly considering whether or not to invest €60 billion of the €500 billion Stability Mechanism. Wolfgang Münchau – one of my favorite authors on this issue – successfully summarized the absurdity at the Financial Times. Let me talk about that today.

The total balance sheet of European banks is worth about €26.7 trillion. In Ireland, the total banking losses account for 10 percent of the total banking assets. In Greece, the losses correspond to 25 percent of the total banking assets. These constitute the losses in evidence. There also is an unrecognized part of it. If European banks on average have 5 percent declared loss and 5 percent unrecognized loss, for instance, there should be a total loss of €2.67 trillion. You might think I am overestimating. So does Münchau. “Assume now,” he says, “that my estimate is wildly wrong, and deduct the size of the Italian economy from that back-of-the-envelope number. You still end up with €1 trillion.”  Does this amount compare with the €60 billion that our European fellows have debated, but not decided to devote to the issue? If the first step of treatment is the admission of a problem, then Europe is not even ready to start at the fifth year of the crisis. Mark my words, the crisis will linger for some time more. The European economy will not be able to recover and grow for a long time. If this is not sufficient evidence, here’s more: what do you think will happen to Europe’s defined-benefit pension system with low interest rates? It necessitates public support, which swells government debt security stocks across Europe and pushes up riskiness further. We are not there yet. But it is going to happen.

Looking at all of this, I claim that the European crisis will continue for another decade. They have been in denial for five years, you see. What happens to Turkey, then? Turkey needs more innovative steps concerning its foreign trade and investments. I will come to that later.

This commentary was published in Radikal daily on 05.07.2013