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Western EuropeOctober 3 2004

Waiting in EU wings

Turkey is cautiously optimistic that it will soon accede to full membership of the EU. The government has made it an absolute priority and its hopes for much-needed foreign investment are riding on it.
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Turkey was recognised as a candidate for EU membership at the Helsinki Summit in December 1999. But it has taken five years for the country to move onto the runway for possible accession. This will be decided at a meeting of the EU in December this year.

The delay is partly due to factors outside Turkey’s control, most notably the preparation that the EU has had to undertake to admit central and eastern European states this year. But Turkey has also had to demonstrate a willingness to restructure its political and economic institutions into a form acceptable to the EU. Observers say that the Justice and Development Party (AKP), which took power in 2002, is more eager and determined than any previous administration to force through the necessary changes.

Strong commitment

Ahmet Davutoglu, the foreign policy adviser to Turkey’s prime minister, Recep Tayyip Erdogan, makes clear the absolute priority the government places on membership. “There is no plan B for Turkey. The stakes for which this government is playing are very high and events are now increasingly out of its hands. Come December, when the EU must decide whether to start entry negotiations, and if so when, the relationship between the EU and its oldest associate member will be changed forever.”

The pursuit of EU membership pervades the country’s economic and political aspirations. For example, Turkey’s medium-term economic policy is now being determined by a desire to reach Maastricht ratios of 60% for debt to GDP. This requires much belt-tightening in terms of social policy but Turkey’s government has committed itself to applying the fiscal discipline to reach EU standards.

According to Ahmet Erelcin, general manager at HSBC in Istanbul, Turkey’s pursuit of the Maastricht criteria is “having benefits for the Turkish economy”. He says: “The positive omens for joining the EU, together with a favourable expectation for the current IMF talks, are building up confidence in the Turkish capital markets.”

Investment catalyst

Turkey’s economic instability, together with its political problems, has made it something of a pariah for international companies and the country has boxed well below its weight in terms of attracting foreign direct investment (FDI). But, according to Gonca Gursoy Artunkal, head of Turkey, corporate finance and investment banking at Citigroup, joining the EU could change that. “The decision about the EU accession is going to be a big milestone. Foreign investment into Turkey has remained below $1bn over the last decade. But once the EU decision is taken, and there is a bit more certainty and clarity about the future direction of the country, then I think it is going to be a big catalyst for people to take a look.”

Mahmut Kaya, executive vice-president at Garanti Securities, puts the same emphasis on FDI. “Turkey has failed so far in winning FDI. The foreign investment that it has received is less than $1bn a year and that’s ludicrous when you compare it with the amounts raised by China and Brazil. But once negotiations begin, foreign investors will have the confidence to come here and acquire Turkish companies with the expectation that Turkey will become a member state in the next eight years. Without the EU, it will be difficult to persuade investors to spend serious amounts of money in Turkey.”

Cautious note

While optimism about Turkey’s prospects of a take-off into the EU is growing, some voices counsel caution. For example, Akbank has said: “Accession negotiations in 2005 are likely. However, there is a possibility that accession talks will be postponed on the grounds that Turkey needs further political reform. A continuous delay seems improbable.

“The start of accession talks in 2005 would boost investor confidence and market confidence. That would result in a relative fall in interest rates. It would also strengthen the currency. Achieving full membership is a long and bumpy road that will require structural reforms and macroeconomic stability.”

While Turkey has had relatively little experience of stability in recent decades, in the light of economic and political progress, some measure of cautious optimism about EU membership now seems reasonable.

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Read more about:  Western Europe , Turkey