“We’re not interested in Turkey’s enemies, who are hiding behind currency rate speculators, the interest rate lobby, or credit rating agencies. These are not our concern.”
Recep Tayyip Erdogan
Enemies and Markets
There is a story – most likely apocryphal – told by Henry of Huntingdon in the 12th century of King Canute. Canute, of Danish origin and king of England (and Denmark and some of the Swedes) for about twenty years beginning in 1015, is reputed to have set his throne at the sea’s edge and commanded the tide to turn back. Frequently a tale told to demonstrate Canute’s arrogance, it is more likely, since Canute was a very able and effective king, that the gesture was intended to demonstrate the futility of his power and flatterers in the face of greater forces. It is not clear whether the forces being revered were supernatural or simply the secular forces of nature.
It is a story President Recep Tayyip Erdogan would do well to bear in mind as he attempts to command the international capital markets. In 1992, George Soros gained the reputation of the man who broke the Bank of England by implementing a series of aggressive short-selling moves that put pressure on the British pound and caused the withdrawal of the currency from the European Exchange Rate Mechanism. In 1997, Mahathir Mohammed, then prime minister of Malaysia blamed Soros and his hedge fund Quantum for manipulating currencies for nothing more than a profit motive. His accusation was that such manipulation was disruptive and ought to be stopped.
Banks are not blameless when it comes to market manipulation of all kinds. In 2016, four major banks were fined a total of nearly $6bn for trying to manipulate the $5trn per day global foreign exchange market. In 2011, the Wall Street Journal broke a story alleging massive manipulation of the London Interbank Offered Rate (LIBOR) on a scale so large that the costs incurred in terms of fraudulent interest payments were estimated to be at least $6bn.
Erdogan is not wrong to assert a historical tendency for international banks to do the wrong thing and abuse their market influence to tilt the field of play in their direction. Regulators are aware of this tendency and yet, although one of the primary ways of combatting this behaviour is to prosecute individuals as well as firms, only one individual was convicted in connection with the LIBOR scandal. Erdogan’s comments, however, seem less focused on levelling the field of play and more targeted to bolster support for the upcoming elections on June 24.
The elections were called for in April and will usher in, for the victor – presumably Erdogan – a new set of powers approved in a constitutional referendum held in April 2017. The amendments will move the country from a parliamentary democracy into a system where most of the power – to legislate and to appoint judges – will lie in the hands of the president. If Erdogan wins, he will be able to stand in two more election cycles and could govern until 2029 – assuming he does not use his new powers to extend his rule beyond that date.
A victory in June would mark a dramatic change in the balance of power in Turkey from a secular, parliamentary democracy traditionally held in check by the ever-present and occasionally activist military to a state embracing one-man authoritarian rule. For Erdogan personally, it would represent a remarkable change in fortune from the point in July 2016 where he was almost deposed by a military coup, to a position of almost unassailable power.
In geopolitical terms, it would also mark a shift. More autonomy for Erdogan would give him greater latitude to promote a more Islam-focused approach to domestic and international policy. In a more public embrace of Islam, the long relationship with Israel will evolve. The relationship is a complex one: rapprochement in 2016 gave way to bitter disagreement over the recent escalation of tensions in Gaza related to the US moving its embassy to Jerusalem. Erdogan is not prepared to admit that Hamas is a terrorist organization. Such denial, of course, is beyond unacceptable to Israel.
The Syrian Knot
The power brokers of Syria’s future are, at least for the time being, Turkey, Russia and Iran. While their interests are far from aligned – Russia and Iran are pro-Assad, whereas Turkey is more concerned to make sure that the Kurdish opposition in Northern Syria does not realize any gains in a post-conflict settlement – they remain the most potent forces for change in Syria.
Israel, of course, while its ties to Russia are substantial and long-standing (militarily and economically – arms and oil), cannot in any way be aligned with its mortal enemy, Iran. Its attacks on Syria, designed to frustrate Iran’s use of Syria as an arms pathway to Lebanon, take place with Russia’s permission, underlining the pervasive ambiguity of allegiances in the Middle East.
Erdogan, like Ataturk, is tapping a well of nationalist pride in traditions and a craving for respect. Erdogan is appealing to Islamic traditions in contrast to Ataturk’s more secular approach. Ataturk gained power and popularity in securing
victory over a list of – largely Christian – foes – the English, French, Italian, Greek and Armenians. Erdogan is casting another list of alleged enemies – America, Europe, Israel – into a similar role.
The ease with which authoritarian leaders can weave fantasies designed to satisfy nationalist longings, and at the same time bolster their own base of power is alarming. It is an alluring path that can at times give such leaders the delusion that they do indeed control all they behold. The capital markets, flawed as they are in many respects, lack the pride that can obscure the prudent path and quickly admit their mistakes. Less than three weeks after Erdogan asserted that high-interest rates caused inflation, the Turkish central bank authored a 3% increase in interest rates.
Thank goodness for the capital markets.
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