EU deal could forge a new Turkey story

TURKEY - In Brief 20 Oct 2015 by Atilla Yesilada

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Increasingly, Turkish elections are becoming a sub-plot in the greater Turkish story that is being gradually created. This story entails severe risks, such as PKK and ISIS terror, Kurdish unrest and the fall-out from the escalating war in Syria. Yet under modest assumptions, the benefits could be far greater. The TL denominated assets seem to be pricing two new positive developments. First, news from the U.S. that sanctions on Iran could be lifted around the turn of the year, which could double our exports to the country. Secondly and more significantly, after Merkel’s meetings with Erdogan and Davutoglu, the odds of a chapters-for-refugees deal with EU have increased visibly. Let me say a few words on Iran before moving on to the topic of my update today, the EU deal. Annual exports (ex-gold) to Iran are roughly 3.5 billion dollars, which could double once the sanctions are lifted assuming these rise parallel to Iran’s oil exports. The EU deal could fetch 3.4 billion dollars for refugee aid for Treasury’s coffers. In a nutshell, within a year or so, Turkish (gross) CAD could shrink more than 10% above and beyond current forecasts, which is very nifty at a time when the country’s foreign borrowing requirement is thought to render it very fragile to Fed lift-off. Now, to the EU chapters-for-refugees deal (the deal). I can confirm from reliable open sources that Merkel personally assured support for the opening of 3 chapters, while alongside Germany, Italy and France are believed to support the said deal, politely called “re-energizing EU-Turkey accession”. Such progress in accession talks could not come at a better time for Turkey, torn by internal ethnic and sectarian ...