​Fewer politics risks, but the coast is still not clear

TURKEY - In Brief 01 Jul 2016 by Atilla Yesilada

---

Executive Summary President Erdogan displayed great leadership and pragmatism by acceding to reconciliation with Israel and Russia, both of which might have felt like personal defeats to him. Ankara sources suggest that reconciliation with Egypt, and even Syria might be in the works. At home, MHP remains in turmoil, while plans for a presidential referendum or snap elections are deferred to autumn-winter. These are substantial positives for the policy environment. Yet, it is not clear how Turkey will deal with post-Brexit EU, in particular when the cherished visa waiver is officially postponed. The Syria policy is overdue for revisions, but great uncertainty remains about its new direction. Most importantly, greater risk of PKK and ISIS terror might emerge as the new threat factor to economic sentiment. In terms of markets, the reaction of risky assets to Brexit is clearly a mania, which would not last. Bank deleveraging and a rising dollar still pose threats to TL, while an impending economic slow-down could hurt other financial assets. Realpolitik in foreign policy will pay late dividends The long-heralded reconciliation with Israel finally materialized, and it is a win-win-win for both countries as well as the long-suffering citizens of the Gaza Strip, who will be allowed some humanitarian aid by Turkey. The Turkish press is already promoting a natural gas pipeline from Israel’s off-shore fields to Anatolia and onwards to Europe, but I think both Turkey and Israel would wish to stress-test the relationship before committing to such a binding relationship. Israel would want to see Ankara downgrade her support to terrorist elements in HAMAS, while Ankara would want Is...