Tag Archives: Turkey

Turkey at a Crossroads?

‘Peace at home; peace in the world.’ Atatürk’s homely ambition has never been more important for Turkey. However, a number of crises are coming together inexorably to force Ankara to think long and hard about its future intentions. Turkey is at a major crossroads.

There are three main reasons: first Ankara’s relationship with the USA; second, Turkey’s position in the Middle East; and lastly, its delicate economic position.

The biggest snowball rolling down the hill is defence, surprisingly. Ankara has insisted that it will take delivery of a Russian-made S-400 advanced anti-aircraft missile system this month, but the US Congress says it will impose penalties on Turkey if it does so. The sophisticated Russian SAM system poses a direct threat to the latest hi-tech US F-35 fighter, also being supplied to Turkey.

Turkey faces a position in which it must either back away from Moscow’s S-400 deal, or accept the possible economic damage of sanctions and its eventual ejection from the US F-35 programme. The result would have been that, whether by levying economic sanctions, or by cancelling Turkey’s participation in the highly advanced (and very expensive) F-35 stealth fighter programme, the US could retaliate and hurt Turkey’s economy badly.

However, risks to its economy and the threat of US sanctions have not stopped Turkey from acquiring Moscow’s air defence system. Ankara stood firm. A government spokesman was defiant: ‘We are a serious country. Our deal with Russia continues.’ Ankara clearly believes that it can withstand US pressure over the issue – because America needs Turkey.

Then, in late June 2019 (in the margins of the G20 Osaka meeting), the Turkish president claimed that a deal had been struck. President Trump had told him there would be no sanctions over the Russian deal and that Turkey had been had been ‘treated unfairly’ over the move.

President Recep Tayyip Erdoğan told reporters that the first delivery of the S-400s would take place within 10 days and that he believed the dispute would be overcome ‘without a problem’ and without sanctions over Ankara’s purchase of Moscow’s missiles. The results were immediate; the Turkish lira soared nearly 3 per cent on 1 July 2019 to its strongest level since April 2019.

However, Ankara’s optimism is a risky calculation. A USAF spokesman later said: ‘Nothing has changed …  Turkey will not be permitted to have both systems.’ Moreover, if the US Congress follows through on its threat to impose sanctions on Turkey by 31 July 2019 and ignores President Trump, that pressure will have a much wider impact on Turkey’s political and economic future than just defence.

Should the USA remove Turkey from the F-35 programme and impose sanctions on its NATO ally, it would be one of the most significant ruptures in recent history in the relationship between the two nations. It would be one more policy dispute that over the years have tested the complicated relationship between Turkey and the USA.

From Turkey’s military intervention to stop the Greek coup and civil war in Cyprus in 1974, to the US invasion of Iraq in 2003 and, more recently, US support for the Kurdish-dominated People’s Protection Units in Syria’s civil war, ties have frequently been strained between the supposed allies. The danger is that Turkey is, for many reasons, drifting away from the West.

This brings us to foreign policy. Turkey is being forced to recalibrate its foreign and regional policy at a time when the Middle East is undergoing a major transformation. Both Russia and Turkey are seeking more influence in an unstable region. Their relationship is a curious mix of cooperative and competitive. Whilst Ankara is well aware of the dangers of creating new risks to its already weakened economy, it also needs to demonstrate its power as a major regional player.

The problem is that Turkey and Russia have serious form going back to the days of the Tsars. For example, the Crimean War in the 1850s was really all about Russian and Turkish rivalry. Since the days of the Ottoman Empire, Turkey has always sought to deny Russia a significant presence to the south or in the eastern Mediterranean. But that is now where Russia is becoming increasingly active – especially in Syria. As Russian influence grows, Turkey’s room for regional influence shrinks. Turkey’s recent accommodation of Russia is therefore historically and geopolitically unusual.

However, given Russia’s military involvement in the Syrian civil war in 2015 – and its determination to support President Assad in power – some form of engagement between Russia and Turkey, Syria’s neighbour, was inevitable. The two sides seem, for the moment, to have settled on a wary cooperation. Russia controls northern Syria on Turkey’s border. When Turkey is frustrated with the West – as it is now over US support for Syrian Kurdish forces and the EU’s doublespeak on enlargement –- it finds in Russia a sympathetic ear.

The third factor is economics. Turkey is a major energy-importing country. It needs low energy prices, particularly given its alarming level of borrowing and an unsustainable current account deficit, much of it caused by its increasing energy needs. Ankara is however in serious economic trouble. This spills over on to the streets of Turkey itself, as recent elections have shown.

The ruling Justice and Development Party (AKP) has won support on the streets by using nationalism to highlight frequent challenges from alleged EU and Western hostility, fear of Islam and foreign pressure against the country. The fragile state of Turkey’s economy now however threatens social and political stability. The country’s economy dipped into a recession since the last quarter of 2018. The lira has lost 30 per cent on the global money market.

Over the next year, the Turkish private sector must pay back at least $150 billion in debts, and in foreign currency too. Unfortunately, it doesn’t have the money. Financially, Ankara is drifting towards national bankruptcy without serious economic reforms – or getting a lot of new money.

However, there are four more years until the next scheduled elections in 2023. The AKP leadership is banking on having time to stabilise the economy, as Ankara believes it can find alternative sources of money.

Two obvious pots of gold are the hydrocarbons beneath the sea off Cyprus and the lure of a sell-out to the East. To deal with the latter first, China’s ‘Belt and Road’ initiative (to buy up ports and infrastructure across the Middle East and eastern Europe) could be a tempting offer for Ankara. Turning to the East offers easy cash – but at a heavy price.

The second cash cow could be hydrocarbons off Cyprus, and Ankara has shown itself determined to get as much as it can and, in the process, warn off any competition. South Nicosia’s optimistic alliance of Italian, French, Israeli, US and Egyptian backers to support their national oil companies’ ambitions is being met with hard words and the threat of maritime force. The balance of power in the eastern Mediterranean is being challenged.

Inside Turkey the first tremors of a domestic political earthquake are being felt, too. With the country in economic turmoil, AKP’s legitimacy is suddenly facing serious challenges. It suffered stinging defeats in municipal elections in March and was humiliated in the recent mayoral election in İstanbul, the key to national political power. Already there is talk of a rival party based on AKP’s original blend of Islamism with democracy and liberal market policies. Both former deputy prime minister Ali Babacan and former president Abdullah Gül are now looking to create a rival party and bid for power themselves.

The result is that politically, economically and abroad, Turkey is at a crossroads; ‘peace at home and with the neighbours’ is a fine slogan, but is looking to be an increasingly distant dream …

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Cyprus in World War I

In 1914 Cyprus was a protectorate of the British Empire, leased by the Ottomans in 1878 to provide London with a base in the Eastern Mediterranean. This all changed in 1914 when, following a secret treaty between the Ottomans and Germany, the Ottoman Empire declared war against the Triple Entente powers of Great Britain, France and Russia. The British garrison promptly annexed the island on 5 November 1914.

Despite its proximity to Turkey, Cyprus was never a battlefield during World War I. Constantinople had too many other problems: first, it was flat broke. Second, many of its citizens – such as the Armenians – did not support the war, and the Sultan found himself fighting off enemies on no less than five fronts, as well as at home: the British in Egypt and Mesopotamia; the Russians invading the Caucasus; the Anglo-French landings in Gallipoli; and the desert Arabs rising up in what is today Saudi Arabia.

The British authorities were always concerned that the Turkish Cypriots might turn against the British, since the Ottoman Empire was officially one of Britain’s enemies. Listening stations were set up to spy on Turkish radio messages and spies and saboteurs were smuggled into Turkey. Cyprus was also used as a convalescent home for thousands of sick and wounded British soldiers from the Middle East campaigns. It also became a secure place to hold the thousands of Turkish prisoners of war. The island was on a martial footing throughout the war and various Governors had to fight off repeated attempts by the Army to take over the administration.

Nevertheless many Cypriots played an active part in the war. Thousands volunteered for the British army and they played an important part in the Salonika campaign. By 1916, the Military Commander of the British divisions on the Salonika front requested a Corps of Muleteers to help carry stores and supplies in the mountainous region of Macedonia.

This contribution of thousands of Cypriots supporting British troops on the Macedonian Front is a largely untold story, but Cypriots provided crucial logistical support to the Allied war effort on the Salonika Front. The Macedonian Muleteer Corps had enlisted 9200 men by early 1918.  Another 401 remained at the training centre in Famagusta. They were well paid at 3 drachmas per day and, by March 1919, the Muleteers Corps was 15,910 strong.  It was estimated that 89% of those recruited were Greek Cypriots and 11% Turkish Cypriots. They served in the Macedonian front, in Serbia and in Bulgaria, while at the end of the war some even entered Constantinople with the victors.

Inevitably they suffered losses. In five military cemeteries in Macedonia there are the graves of 30 Cypriot muleteers killed in action between the years 1916-19.

Perhaps the most curious twist of Cyprus’ involvement in the Great War was the attempt to hand the island over to Greece, lock, stock and barrel. By 1916 London was desperate to woo Greece into joining the war. Athen’s nationalist Prime Minister, Venizelos was actually offered complete ownership of the island as a bribe towards Greek dreams of ‘MegaHellas’, a greater Greece, at Turkey’s expense. To the amazement of the Greek Cypriots, King Constantine turned it down, to the fury of his Prime Minister Venizelos, who was sacked. Tempting though the offer was, at the time the King didn’t want to be dragged into someone else’s war.

This call for ‘Enosis’ – union with Greece – would have to wait another half century and for EOKA’s gunmen. But that is another story …

This article first appeared in Cyprus Today in November 2018 to commemorate the centenary of the signing of the armistice to end World War I. The piece is reproduced here with the kind permission of Cyprus Today.

ISIS: The Final Countdown?

Winston Churchill once famously said, ‘battles are the punctuation marks of history.’ Well, we have just avoided a potentially disastrous ‘exclamation mark’ in the bloody history of the Middle East. Whilst the post-colonial Versailles settlement of 1919 is being brutally readjusted to take account of the harsh realities of today’s Muslim world, a major crisis has just been avoided. At Russia’s Black Sea resort of Sochi, Turkey and Russia have agreed to form a joint, demilitarised buffer zone around Syria’s embattled north-western province bordering Turkey: Idlib.

This agreement defuses a growing crisis between Ankara and Moscow by preventing any major Russian-backed government offensive from exploding into ISIS’s final rebellious Syrian redoubt. However, significant obstacles remain; Idlib could still become a flash point.

The problem is that the Middle East is as much of an unexploded bomb today as Europe was in 1914. Sunni Saudi Arabia hates Iran, and Shi’a Iran loathes the Saudis. Shi’ite Assad’s remaining chunk of Syria is the close ally of Iran. Behind the Saudis stand the USA, Britain and France. Behind the Iranians stand the Russians, sometimes the Turks, ever keen to obliterate the Kurds, and perhaps China – and watching nervously from its ringside seat is Israel.

For the past ten years we have all been living with this savage struggle to the death. Muslim has been slaughtering Muslim, all in the name of the Prophet of the religion of Peace and Love – ‘May his name be blessed.’ Now this round is nearly over; or is it?

The Turkish-Russian Sochi deal has been welcomed by all sides as an opportunity to avert the suffering that any major offensive would inflict on the province’s 3 million civilians. UN Secretary-General António Guterres welcomed the agreement, saying that the ‘creation of a buffer zone in Syria’s rebel-held Idlib province should avert an all-out military assault and provide reprieve for millions of civilians.’

It would also avoid the heavy losses that would be incurred by government forces in launching the biggest battle yet of the Syrian war against the cornered rebels. Turkey, the UN and aid groups have warned that any major assault by Russian and government forces backing President Bashar al-Assad against the trapped rebel fighters would lead to a massacre. It could also send 800,000 new refugees fleeing across the border into an already overwhelmed Turkey.

Many of the civilians in Idlib are already refugees from other parts of Syria following the collapse of the opposition resistance in cities such as Aleppo. The consequences of an all-out offensive against Idlib with its hapless civilians and the risk of Turkish troops fighting Russians could have led to a bloodbath.

The agreement is specifically designed to halt this major Russian-Syrian-Iranian attack on Idlib, with its trapped civilians.  The agreement calls for a 9- to 12-mile demilitarised  zone around the borders of the region, safe from Syrian and Russian air-force attack and which must be in place by 15 October. Heavy weapons including tanks, mortars and artillery will be withdrawn and Russian and Turkish troops will police the neutral zone. The Syrian government said that it ‘welcomed any initiative that stops bloodshed and contributes to security and stability.’ President Recep Tayyip Erdogan added, ‘With this memorandum of understanding, I believe we have prevented a major humanitarian crisis in Idlib.’

However, the devil is in the detail. The deal’s success hinges on the withdrawal of an estimated 10,000 fanatical jihadi rebel fighters from the buffer zone, fighting under the banner of Hayat Tahrir al-Sham (HTS), the Syrian franchise of al-Qaida and listed as dangerous terrorists by Russia, the USA and the UN.

These are some of Syria’s fiercest rebels, battle-hardened over years of gruelling warfare. HTS will fight to the death rather than surrender and they have good reason to do so: talks with the government have gone nowhere. In recently recaptured parts of the country, Assad’s goons have promptly arrested former rebels and opposition officials despite assurances of amnesty. Many have disappeared into Assad’s torture dungeons. ‘It’s either die, or surrender – and then die,’ says one rebel leader.

Despite these problems, Iranian Foreign Minister Mohammad Javad Zarif (a staunch supporter of Assad) tweeted: ‘Diplomacy works.’ However, he added that his visits to Turkey and Russia in recent weeks had achieved ‘a firm commitment to fight extremist terror.’ Putin himself added, ‘Russia and Turkey reiterated their commitment to continue anti-terrorism efforts in Syria in any of its forms or manifestations.’

Quite how this agreement to quarantine Idlib helps to stamp Islamic terrorism remains unclear because the deal is very fragile. With jets from at least six countries – Israel, Russia, Syria, Turkey, Britain and America – roaming the skies over Syria, the risk of mistakes leading to further escalation of the fighting are just a pilot’s blink away. Also, where will the rebels go?

Nevertheless, the international consequences of Sochi are important. Russia has scored a major diplomatic victory by striking a deal with Turkey. Moscow has avoided damaging its growing strategic relationship with Ankara, whilst achieving its own aims in Syria without more bloodshed. The Syrian war may be ending.

However, some things have not changed. ‘Russia doesn’t like the rebels and they want to help Assad lock down his victory; but they also have strong incentives to continue courting the Turks,’ said Aron Lund, an expert on the region. ‘Syria is just a small part of what Putin cares about. If he can just make the Syrian conflict quiet and unthreatening with Assad still in power, then Russia has won the war ….’

Idlib’s locals have mixed emotions about the Sochi deal. Abdulkafi Alhamdo, a 32-year-old teacher living in Idlib remains wary. ‘After seven years, if we trusted anyone we would be fools. Whenever we trust anyone they trick us,’ said Mr Alhamdo, who lived through the siege of Aleppo before fleeing to Idlib.  He added that he was ‘so happy, and so sad’ about the deal, because it still leaves them in limbo.  ‘People might be able to live again. Children might know there is tomorrow without planes. But we are still in nowhere. Refugees forever.’

Others have spotted the loopholes in the agreement. Thanassis Cambanis of The Century Foundation warns: ‘The gaping hole is that “terrorists” are still fair game. Putin has endorsed a lot of truces, but then Russia proceeded to bomb groups it defines as terrorists, because it says they weren’t part of the wider deal.’

This truce might be different. Putin’s own credibility is at stake, having made such a high-profile deal with President Erdogan. Turkey and Russia are increasingly becoming trade and diplomatic partners. Russia is building Turkey’s first nuclear reactor. The Kremlin also sees the strains between Turkey and western countries as a wonderful opportunity to divide and weaken the NATO alliance, to which Turkey provides the second largest number of troops. Putin has a personal stake in the Idlib agreement.

However, whilst for the Jihadis the battle may be lost, their long war is not over, because crushing ISIS in Syria will not eradicate the real problem. If the jihadis escape, the deadly spores of terrorism will merely disperse to spread their Islamist terrorism, which is already ‘global and growing.’ Islamist extremists caused 84,000 deaths in 2017 and intelligence agencies have identified 121 groups sharing a common ideology, now operating worldwide. They killed 84,000 people – nearly 22,000 of them civilians – in 66 countries in 2017, according to latest reports.

Even Whitehall admits that a convicted jihadi terrorist is being released onto the streets of Britain nearly every week. Home Office figures show that 46 prisoners held for terrorism offences were released in 2017 (The Telegraph, 13 September 2018)

ISIS and al Qa’ida are still very dangerous. Whatever happens in Idlib, we have not heard the last of them. The fallout from Syria will be with us for years.

What’s Going On with the Lira?

When Turkey sneezes, then the Turkish Republic of Northern Cyprus (TRNC) catches a cold. Nowhere is this more true than in the TRNC’s currency, the Turkish lira.

The Turkish Army bled to liberate the Turkish Cypriots in 1974. Turkish soldiers’ graves lie on TRNC soil. Since that legal intervention to protect Turkish Cypriots over four decades ago, Ankara has maintained a garrison in the North to deter any foolish Greek adventures. From this benevolent occupation many other things have flowed: Turkish taxpayers pay for the TRNC; Turkish money provides jobs and infrastructure; and, above all, the TRNC uses the Turkish lira as currency.

But of late something has gone badly wrong. In the past few months the Turkish lira has plummeted in value on the international money markets. The impact on the TRNC is cataclysmic.

So what has gone wrong? The simple answer is that Turkey, having emerged from the global financial crisis of 2008-09, borrowed heavily in foreign currencies to fund its government’s programmes. With interest rates at an all-time low this made sense. Cheap foreign money could boost growth.

This plan worked well initially. The Turkish economy has grown by 300 per cent since the early 2000s, riding an unprecedented wave of construction and consumption. Foreign investment poured in. Huge projects – such as the USD $11bn (GBP £8.6bn) Istanbul–Izmir motorway, a high-speed Ankara-Istanbul rail link and plans to build the world’s largest airport – have soaked up foreign loans. The economy grew by a whopping 11 per cent in 2011.

However massive borrowing at low interest rates cannot last for ever; it has to be repaid. Now the chickens have come home to roost. To make matters worse, many of Turkey’s big construction companies have borrowed too much the past decade and are finding it difficult to repay them. This makes the economy very vulnerable.

Also, the geopolitical game has changed. US interest rates have got tighter and the dollar is strengthening. Any country that has borrowed heavily from abroad to fill its budget deficit is suddenly under pressure. Now Turkey has to repay its debts in foreign currency and there’s the rub: it can’t afford to.

Turkey has a deficit in its international trade: it imports more than it exports, which means that it spends more than it earns. This deficit has to be financed, either by foreign investment or by more borrowing from the world’s money markets. There’s nothing unusual about that: Britain’s Treasury does just that, year in year out.

Turkey’s position is not like the UK, however. With a growing deficit of national income, or GDP, in 2017, investors are becoming increasingly wary of lending more money to Turkey, for three reasons.

  • Ankara has a lot of debt due for repayment in the near future – loans that have to be repaid or more money borrowed from someone else to pay them off. To the financial markets, the debt has to be ‘refinanced’. However, borrowing from Peter to pay Paul has never been good economics, either personally or nationally. Credit rating agencies like Fitch estimate that Turkey’s total debt is a whopping USD $223 billion – about a quarter of Turkey’s GDP – USD $50 billion of which falls due in 2019, USD $20 billion by December 2018. Where will Turkey find that money?
  • Since many big Turkish companies have borrowed in foreign currency, nervous investors suspect that the companies may have over-reached themselves. These loans become more expensive to repay if the value of the national currency declines – which it has. The result is that a number of major Turkish corporations, among them Doğuş Holding and Yıldız Holding, are already in trouble and need to restructure their loans. Türk Telekom has actually been taken over by its creditors after Oger Telekom defaulted on a USD $4.75 billion debt.
  • Investors are increasingly reluctant to put their money into Turkey. They are actually selling off their holdings of Turkish lira, forcing the value down. The nervous markets are causing a self-perpetuating fire sale of lira. Like lemmings going over a cliff, bankers everywhere are trying to dump their lira holdings as fast as possible at knockdown rates.

In other words, Turkey’s reliance on the foreign investment to keep itself afloat is drying up. For many years, this did not matter as interest rates in developed economies were at record lows, so borrowing from abroad remained cheap. Now those days are gone.

Exchange rate (TL-GBP): 2008-present

This growing currency weakness also aggravates Turkey’s persistent inflation problem, because as the lira grows weaker imports become more expensive. Just like the TRNC, Turkey relies on imports for much of its goods.

At the same time, markets are alarmed by the refusal to raise interest rates, which is the normal economic weapon to tempt timid investors back into lending their dosh. The recent US sanctions on Turkey have compounded this whole problem. ‘With a backdrop of rising rates and a stronger dollar, the imposition of US sanctions were the final ingredient for a perfect storm for the economy and Turkish assets,’ explains Nafek Zouk at Oxford Economics.

The impact of all this high finance has hit ordinary Turks and Turkish Cypriots hard. Tourist Janet Cowley, a foster carer and former police officer, said: ‘I’ve been paying for things in pounds sterling, just so the people here have some money. It’s terrible for them. Good for the tourists, though.’

Business owners are similarly concerned. In the TRNC many of the goods in the shops and supermarkets are imports bought in foreign currencies. The businesses that have taken out loans in dollars or in euros are suffering the most. One shopkeeper explains: ‘We have to pay for our stock in dollars, euros or pounds and then sell them for lira. We now need more lira – a lot more lira – just to pay our bills.’

The effect on inflation is obvious to anyone living in the TRNC. All energy has to be imported and oil is priced in dollars. Retail prices have shot up by at least 20 per cent on imported goods. Profiteering has become rampant and blatant, with some stores relabelling prices overnight on goods that have been on their shelves for weeks and were paid for months ago. Sadly we should never underestimate the Levantine temptation to grab a quick buck and let the customer rot.

The other great worry for the TRNC is that many high-value goods, such as houses or cars, are priced in pounds sterling. This means the buyer or a shopkeeper renting a shop and taking in lira as income has to find a lot more lira suddenly – as much as 40 per cent more in some cases. In turn, that means that a lot of shopkeepers will be unable to find enough lira to pay their increased bills. This leads to bankruptcies or worse: evictions. Pakistani Gastarbeiter (migrant workers) paying GBP £250 for a one room shared flat, suddenly find that TL Turkish lira symbol 8x10px.png1,800 a month won’t keep a roof over their heads, let alone a chicken on the plate. The social consequences, and dangers, of the collapse of the lira on ordinary working people throughout the TRNC will be profound – and worrying.

So what is the answer this financial crisis? The first step would normally be to put up interest rates or capital controls. Ankara has insisted it will not do that. Instead Turkey is buying time with a US $15bn loan from embattled Qatar, desperate for an ally in the Arab world. This is a fleabite, however, and the money won’t last long. In the background are Ankara’s new best friends, Moscow and Beijing. If China’s rack record is anything to go by, look out for the PRC bankrolling Turkey by buying up everything in sight, from Istanbul Harbour to factories and even an airport or two. Ankara is now looking to the East for salvation.

Money Makes the World Go Round

For the second time in a month, to my surprise, I find myself agreeing with President Putin.  Speaking at the International Economic Forum recently he warned: ‘We don’t need trade wars today … we need a comprehensive trade peace.’

Cuddly old Vlad was really warning us that there’s a financial firestorm brewing. Looking at what is going on with the euro and the Turkish lira, it’s hard to disagree.

The euro is really our old friend the Deutsche mark, cunningly devalued and disguised to pay for German re-unification, and now Europe’s chokehold currency of no choice. For example, any independent Scotland joining the EU would nowadays be ‘forced’ to accept the euro. Difficult for the Scots: not for nothing did Thomas Carlyle call economics the dismal science.’

Dismal science or not, money makes the world go round – and always has done. Even St Paul admitted: ‘The love of money is the root of all evil.’ This titanic battle for economic power rages around us every day, as China and America tussle behind the scenes over who owes how many dollars to whom and what they are worth, whilst a worried Commission in Brussels watches nervously as its great dream of a superstate called ‘Europe’ begins to disintegrate.

Because the UK’s ‘Brexit’ is the least of the EU’s problems. With Poland refusing to toe the Merkel party line, the Balkan states disobeying Juncker’s ‘diktats’ on immigration, and now a major trade war looming with the USA, Brussels has its hands full. Money is at the heart of it all. The unfolding Italian political train crash that is the new populist, anti-establishment Eurosceptic government is Brussels’ worst nightmare. It threatens their euro. Austrian chancellor Kurz gives the game away, bleating: ‘We saw in Greece how dangerous it is if a country has a bigger and bigger debt and I hope that we will not have a second Greece in our neighbouring country, Italy.’

The reason? Money and debt. Frightened hard currency has been haemorrhaging out of cash-strapped Italy for months, driving it even further into the red, amid fears of a Greek-style euro debt crisis which would bring the country to its knees. The new Italian government is even threatening to quit the euro and set up a parallel currency.

This is serious, because Italy is the eurozone’s third largest economy, nearly ten times the size of Greece’s.

The former chief economist of the IMF – Olivier Blanchard – believes the eurozone is heading for an ‘horrific crisis,’ denouncing Italy’s popular new government’s plans as ‘likely to violate all EU and domestic fiscal rules and put debt on an unsustainable trajectory’. What he means is that Rome is inviting an economic and political war, because the big French and German banks risk losing billions if Italy says, ‘no more pay offs.’

Brussels now has the beginnings of a serious rebellion on its hands. However, once again Italian voters have been over–ruled by EU technocrats, pressuring President Mattarella to ignore the voters, just as the Berlusconi government was toppled in 2011 by Brussels and the European Central Bank, in what was effectively a ‘soft coup.’

This is dangerous territory.

The Italian president’s refusal to accept the Lega-Gillini finance minister because he ‘could provoke Italy’s exit from the euro’ is dynamite. The political message to Italian voters is clear: whoever you vote for, the eurozone rules. A Lega spokesman explained: ‘You have to swear allegiance to the god of the euro in order to be allowed to have a political life in Italy. It’s worse than a religion.’

In Brussels,  Juncker openly threatens: ‘There can be no democratic choice against the European treaties. One cannot exit the euro without leaving the EU,’ and Günther Oettinger, European Budget Commissioner for Budget, actually said: ‘This will teach the Italians to vote for the right thing.’

Because the ECB and Brussels will fight to the last drop of Italian money to stop anyone escaping from their eurozone straitjacket.  The French Finance Minister warns: ‘If the new government takes the risk of not respecting its commitments [in other words, “If Italy doesn’t pay its huge debts to our big French and German banks”], the financial stability of the eurozone will be threatened. Everyone must understand that Italy’s future is in Europe and nowhere else. … there are rules that must be respected.’

This push to smother Italy’s eurosceptic rebellion, as they muzzled Syriza in Greece, comes from a worried Berlin, Brussels, and the EU power structure. But this time they may have blundered into a trap, because the EU’s economic problems grow worse every day. Now debt-ridden Spain admits it is in serious trouble. And Spain owes euro banks ‘zillions’, too. The bottom line for the EU is that if the Italians and Spanish welch on their euro debts, then the euro is finished – with huge international bankruptcies on the cards.

‘So what?’ says the man in the Kyrenia café, ‘How do big economic problems affect me, my family and my bank account? Who cares?’

The answer to the puzzled denizens of Turkish North Cyprus is ‘look at your money.’ Something very odd has happened to their Turkish lira. One year ago, 1 GBP pound sterling bought you 4.30 TRY; ten years ago, on 31 May 2008, a quid bought just 2.12 lira. And today? Going to press, a pound buys you around 6 lira. That’s what international currency fluctuations do to the expat, watching his pension. That’s how small Turkish Cypriot businesses, being paid in lira whilst paying for their rents in sterling, go bust. The reason? Money: because the Turkish lira is now in deep international doo-doo.

For years, Ankara’s AKP government has funded its massive vote-buying economic programme with money borrowed from overseas investors, attracted by Turkey’s generous interest rates. No less than 70% of Turkey’s deficit is covered by short-term foreign loans.

The problem is paying off those loans. Interest payments were biting deeper and deeper into Ankara’s Central Bank’s precious reserves of hard currency US dollars or euros. Loans began to dry up, so the Central Bank increased interest rates to tempt the punters and keep the all-important foreign dosh flowing. The problem is that at 13.5% the interest payments were expensive – but, at 16.5%, they could become ruinous.

At which point Turkey’s would-be President stepped in, boasting that he personally intends to run the economy when he wins the election on 24 June to become all-powerful leader. On his orders, interest rates will be slashed to 10% to save Turkey’s money. Result? Instant panic and predictable flight by spooked, nervous lira investors. Consequence? A market panic with foreigners desperate to unload their lira while they can. ‘Cheap? Your real, genuine Turkish lira. A real bargain, guv … Gotta sell.’

Because that’s what markets do. That’s how economics works: supply and demand. No demand for lira, they go dirt cheap. The result is that Turkey will either have to devalue, introduce capital controls or accept that, whatever their ‘Dear Leader’ thinks, foreigners will decide just what the Turkish lira is truly worth: and foreign investors are not impressed.

As an anonymous fund manager at a major asset management firm, complained: ‘Erdogan is fighting the extremists, he is fighting after the failed coup – now he is fighting the financial markets, and that is dangerous …. You can fight your domestic foes all you want; but when you are trying to take on the global financial market, that is a battle you can’t really win.’

And the EU? Watch this space. Of one thing we can be sure: the Commission, Berlin, Paris and Frankfurt will gang up in a darkened alley, ready to bludgeon, beat, bribe, browbeat and bully Italy to keep their precious euro together at all costs. Once again, the financial gloves are off. It’s going to get ugly. Just ask the Greeks.

Money really does make the world go round.

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Watch Out! There’s a War About

For once I find myself in total agreement with Vladimir Putin, who observed recently in a Blinding Glimpse of the Obvious that ‘the world is becoming a more chaotic place.’ Whilst Pres-for-life Vlad’s BGO doesn’t exactly qualify him as a great thinker, this time he is absolutely right. There’s a definite feeling abroad of an unravelling in world affairs; an uneasy sense that something nasty is lurking round the corner of history ….

As Nigel Molesworth put it so succinctly in Down with Skool: ‘History started badly and hav been getting steadily worse.’ Looking at our increasingly troubled world, maybe ‘the gorilla of 3B’ got it right.

But first, the good news. A few months ago we were all nervously observing a ‘mad, bad and dangerous to know’ US President threatening fire and fury at North Korea’s ‘Little Rocket Man’ over nuclear missiles. It was definitely steel helmet (and don’t forget your respirator) time. Now, thanks to Trump’s interesting blend of diplomacy, brutal economic sanctions and the threat of violence, Kim Wrong ’Un seems to have a sudden change of heart and is smiling for the cameras and shaking hands across the border. Sigh of relief all round?

However, let’s not get too excited. North Koreans have a consistent track record in talks with the South and the US: consistently lying and trousering the ‘Danegeld’ paid to them to behave themselves, whilst they ignore any agreements. We need to watch this ‘deal’ very carefully.

And let us not forget that Dictator Kim was threatening nuclear war whilst still presiding over appalling human-rights abuses as he ruthlessly executed friends and family alike to eliminate his rivals. Nonetheless, if President Trump really succeeds in negotiating an end to Kim’s nuclear provocations and the Korean War (‘Neutral ground or dramatic backdrop?‘, Telegraph, 23 April 2018), he will have defused a potentially apocalyptic global crisis.

Good luck with that.

Now for the bad news; and there is far too much, as Putin warns.  Intelligence analysts are warning that trouble is looming from at least three other directions: Syria and Iran; Israel; and a global economy deep in debt.

First, Syria, where the endless civil war to keep Assad and his Shi’a allies in power has morphed into something new – and much more worrying. UN Secretary General Guterres warns: ‘The Cold War is back with a vengeance – and a difference.’ The difference is that it is no longer cold. Something very dangerous is unfolding in the war-torn Middle East. A little-known Iranian-backed Shi’a group calling itself the ‘Baqir Brigade’ has declared jihad on US forces in Syria,  where Russian and American troops are only a rifle range apart.  The US, UK and France have already attacked Syrian military targets as a reprisal for the latest gas attack. The dangers are obvious. Any Russia and US fighting in Syria could detonate a hot war and set the entire Middle East on fire.

Further north, Turkey has invaded Syria to crush the Kurds – the warriors who really defeated ISIS on the ground. Meanwhile the Iranians and their Lebanese Shi’a proxy, Hezbollah, have set up a new battle front on Israel’s border. Iran effectively runs Syria now and is turning its malevolent eye against Israel.

This time the Mullahs are really playing with fire. Israel is not a normal country. Tel Aviv will fight like a cornered cat against an enemy that has sworn to ‘sweep the Jews into the sea.’ And Israel possesses nuclear weapons precisely to deter anyone stupid enough to threaten Israel’s very existence. Israel has warned that ‘it will retaliate with every means possible,’ if attacked by Iran and its friends.

Ironically, Iran’s nuclear ambitions may be unravelling at the very moment it tries to intimidate Israel. Tehran thought that it had pulled a stroke with nice Mr Obama with his 2016 no-nukes deal to get sanctions lifted, whilst continuing to build its Shi’a empire in Iraq, Lebanon, Syria, and now Yemen. Trump is having none of that. Despite Macron’s pleading for a cosy continuation of flogging French and EU goodies to oil-rich Iran, Trump pulled the plug on 12 May 2018 and re-imposed economic sanctions, blocking Iranian oil sales and wrecking Tehran’s not-so-secret nuclear plans.

This is bad news for the world economy, which is now just as vulnerable to a financial crisis as it was in 2008. Oil is the motor of commerce. Oil prices, which dropped to $30 a barrel in 2009 and 2016, are now rising as production cuts by OPEC and Russia have finally sold the world glut of oil; so supply dries up. Iranian sanctions alone will remove 500,000 barrels a day from the market.

Even America’s new oil-shale output cannot fill this gap between supply and demand. Now Brent crude has risen to $72 a barrel and will probably go higher now that Trump has re-imposed sanctions. This could be a global economic bombshell as various geostrategic crises explode. Saudi Arabia is already talking about $100 crude, setting off a speculators’ scramble;  ‘We are pretty confident that oil will be in triple digits by next year,’ opines Jean-Louis Le Mee from Westbeck Capital.

IMF reports warn of a chain-reaction for world finance. One is well-understood: debt. Global debt has been alarmingly high since the 2008 financial crisis. Since then, nations have continued to borrow hand over fist, pushing worldwide debt to $200 trillion (a trillion is a million, million million.)  That is nearly three times the size of the entire global economy.

The second economic problem is that the Chinese and German economies are going into reverse. Germany’s economy in particular is stalling surprisingly quickly. The economic miracle by the EU’s motor of industry is over and now even Berlin faces economic problems, warns Düsseldorf’s Macroeconomic Policy Institute: ‘The danger of recession has increased markedly. It is a more critical picture than just a month ago.’

All this is happening as Korea teeters on a knife edge, Washington and Moscow go head to head, Syria faces multiple wars, Israel and Iran are shaping up for a catastrophic showdown, and the proxy war between Saudi Arabia and Iran over Yemen gets out of control with missile attacks on Saudi targets by Iranian-backed Houthis. A full blown religious war between Sunni and Shi’a has started. One intelligence analyst warns: ‘All it will take is one Houthi missile sinking a 200,000-ton oil tanker in the Gulf and the consequences would be global.’

Even here, on our island in the sun, alarming events are going on all around us. Suddenly bankrupt Greece is preparing to lease two French multi-purpose frigates to bolster its defences in the Aegean Sea, amid rising tensions with Turkey. Fighters are again on the alert over contested islands. Turkey sails warships to Cyprus to protect hydrocarbon finds. Hostages are being held on both sides. President Erdogan suddenly announces a snap election to choose the country’s next president and parliament on 24  June 2018, to give himself greater executive powers.

All this at a time when the Turkish economy is overheating, raising the possibility of another financial crisis like 2001, when the AKP first came to power promising a strong economy. With Turkish national borrowing skyrocketing and Ankara having to lure foreign money with promises of 13% interest on government bonds, this doesn’t look much like economic competence. The truth is that we are ‘living through interesting times,’ as the old Chinese curse puts it.

Whilst most normal people are just trying to get on with their lives, get to work, earn enough to raise a family and enjoy themselves, all around us alarming events look like coming to the boil. Politically we are living through world-changing history.

It’s an increasingly unstable and dangerous world.  We need to watch out for what is really going on out there.

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