Many of you have written us asking for a video about what is going on in Turkey.
And believe me, the
situation is quite dangerous.
And… in case you were wondering…
NO, this time, Donald Trump is not to
blame for this.
In fact, the US sanctions are just the tip of the iceberg.
An iceberg that could wreck
many many ships.
And yes, the ships in this case, are the European banks.
Just look at this map.
Turkey is a bridge between Europe and Asia.
We’re talking about a country with a
population as big as Germany’s.
A country where Europe has been investing for decades: companies,
factories and, of course, lots and lots of loans.
Want an example?
Here you go.
Have you ever heard of
the BBVA?
It’s the second biggest bank in Spain.
Well, Turkey is the third biggest market for this bank.
In other words…
when the Turks sneeze a lot of Europeans end up with a cold.
Aren’t scared enough yet?
Well, listen up…
“Turkey is one of the most important NATO members.
After America, they have the biggest army in the
alliance.
And they are one of the few countries with a Muslim majority and a secular constitution.
At
least…
so far.“
Yes, you heard this right.
We said ‘so far’.
The truth is, the Turkish president, RECEPT TAYIPP ERDOGAN…
well, that man, he is not a big fan of secularism.
Erdogan is something like the ANAKIN SKYWALKER of politics.
He started out as the good guy in the movie
but… we all know that, eventually, he will fall to the dark side…
In this case, the dark side is a mix
between religious fanaticism and good old populism.
Erdogan likes to portray himself as the defender of the average man.
Those turks that live in rural areas
like KONYA, completely outside of the glamour of ISTANBUL.
The turks there don’t have amazing salaries
and they maintain a traditional lifestyle.
And… who do they need to be protected against?
Well, of
course, the Western conspiracy that wants to end Turkey!
This explains why news like this is so important for Erdogan’s narrative.
U.S. Imposes Sanctions on Turkish Officials Over Detained American Pastor
Nonetheless, this is just the tip of the iceberg.
First of all, the actual reason behind the US sanctions
is not the pastor but the military and situations with the Kurds in Syria.
But that’s another story for
another video.
The truth is Turkey’s crisis has been going on for three years already.
And this isn’t
just a political crisis!
In fact, the biggest problem is economics.
We’re talking about a small scale
Venezuela…
at the very gates of Europe.
But now the question is… what is going on in Turkey?
What happened in this country to cause them to fall
to the dark side of economics?
Do we really have reasons to be scared?
Today we are going to answer all
of these questions but before we do, let’s take a look back at history.
ERDOGAN, THE SAVIOUR
Turkey is famous for many things: Saint Sophia, kebabs and… inflation!
Since 1970, and until the year
2000, Turkey had sky high inflation rates.
Many years they even surpassed the 100% mark.
This means that,
from one year to the next, prices would double.
And what happens when you have so much inflation and you live so close to wealthy European
countries?
Well… you become a cheap labor Disneyland!
Companies like RENAULT of PEUGEOT built lots of factories in
Turkey.
And I know what you’re gonna say now…
‘OK, Simon, but this is good news for a country, isn’t
it?’.
Well, yes… and at the same time, no.
For example, in the 60s, Renault opened a factory in BURSA, a city in northern Turkey.
Manufacturing cars
in Bursa was very cheap for Renault.
Since the Turkish lira was devaluating year after year, Renault had
to pay lower salaries.
Nonetheless, once they got the money from selling those cars…
Do you think they
kept that wealth inside of the country?
Of course not!
If Turkish money was losing value so fast, the
smartest thing you could do was take the money out ASAP.
This is why Turkey seemed doomed to stagnation…
Until the year 2003.
That’s the year when Erdogan came to
power.
His main goal was to keep inflation below 10%.
He created a new currency, the New Turkish Lira.
A
currency far more stable than the previous one.
And as soon as inflation was at hand, the Turkish economy
made a 180 degree shift.
All of a sudden, many European companies started investing in Turkey.
This included banks.
One of them,
the Spanish BBVA, invested on this country big time.
So much so that now Turkey is their third largest
market.
So in the 2000s, Turkey was in fashion.
Rule of law and monetary stability meant that companies could
reinvest in the country.
So in less than 10 years, your average Turkish worker went from making 800 USD a
month to making more than 1200 USD a month.
But not only that!
In those first Erdogan years, new industries like tourism developed.
Turkey went from
13 million tourists to 39 million.
And what about Turkish companies?
Well… have you ever heard of TURKISH AIRLINES?
In the 90s, Turkish
Airlines was just another airline carrier.
But since they could now reinvest their profit, they ended up
becoming an aviation juggernaut.
And, believe me, they are not an isolated case.
If there’s one great example of the Turkish Miracle, it’s YILDIZ HOLDINGS.
This company started out as a
family owned bakery and now they’ve already bought European brands like GODIVA CHOCOLATES
or UNITED
BISCUITS.
Today, YILDIZ HOLDINGS is the World’s third biggest company in the food sector.
So in other words…
the Turkish economy was ON FIRE.
And since the economy was ON FIRE, nobody seemed to
care about the fact that Erdogan had spent some time in prison for being part of a radical
Group.
At the
end of the day, the country was still democratic and Erdogan was the arab rockstar.
The chosen one to
bring the Islamic world to the… bright side.
Back then, Turkey wanted to be European.
They were just about to become a member of the European Union.
As a fun fact, in 2003 they won the Eurovision song contest.
But, you know, the negotiations to become a
EU member extended over time… and What happened?
Well…
Erdogan lost his patience and he said…
Oh!
So am I not cool enough to join your club?
Well you know what?
I’m tired of being so Western, having
separation of powers, secularism and I-don’t-know-what-else.
All of that is over.
Now is the time for…
THE NEW ERDOGAN-O-MICS
In the last 5 years, things started to sour for Erdogan.
First, he was personally involved in many
corruption cases.
But worst of all was news like this.
Istanbul Ataturk airport attack: 41 dead and more than 230 hurt
DAESH attacks have brought Islamic terrorism and insecurity to the streets of Turkey.
And the damage to
the tourism industry was immediate.
In just 2 years, tourism income has fallen by 25%.
And this is
specially worrying given that tourism accounts for 13% of the Turkish economy.
But that’s not all…
Foreign investment has fallen by half.
And you might wonder…
why?
Well… there are two
reasons for this.
The first one is the lack of a chance that Turkey is going to become part of the
European Union.
The second is Erdogan itself.
Yes, my dear viewers, Islamic radicalism is not just a danger politics wise.
It is also the worst for
economics.
Turkey's Erdogan calls interest rates "mother of all evil"; lira slides
According to Erdogan, the so-called ‘economic orthodoxy’ is a Western invention that will
destabilize
Turkey.
This borrowing money with interest thing goes against Islam.
So, he went to the Central Bank and
forced them to lower the interest rates and start printing money.
And what if the Central Banker doesn’t
want to do that?
Well, these are Erdogan’s words.
"the central bank can't take this independence and set aside the signals given by the president."
–
Erdogan speaking to Bloomberg
So, in other words, after the failed coup d’etat of 2016, Erdogan has finally fallen
to the dark side.
He
thinks he can manage the economy at his will.
And every rational critic against his economic policy will
be seen as a Western conspirator.
He even named his son in law as Finance Minister.
This new economic
paradigm is not a free market or social democracy…
this is the new Erdogan-o-mics.
Do you need Money to pay for your spending?
You print it!
Are Turkish companies complaining?
You flood
the market with cheap credit!
In less than 2 years, Turkish Banks have given more than 50 billion dollars
worth of loans.
And all of this with almost no interest.
The result?
A crazy devaluation of the Turkish Lira.
“In the year 2014, the American Dollar was Exchanged by, more or less, 2.5 liras.
By the time we make
this video, the exchange rate was more than 6 liras per 1 dollar.
This means that the Turkish lira has
one third of the value it had before.
And this explains why inflation rates rose to 11.9% in 2017.“
OK, OK!
I know what you’re thinking…
11.9%?
That doesn’t sound so bad, right?
In Argentina, for instance,
they have 3 times more inflation.
The truth is that you need some time between a devaluation and the rise
in day to day prices.
So who are the first ones suffering from the effects of this devaluation?
Well…
those would be the companies that had loans in foreign banks.
And there are more than a few!
Do you
remember YILDIZ HOLDINGS?
That food industry behemoth?
Well, here you go…
Turkish owner of Godiva chocolate to restructure $6.5 billion of debt
Estimations say that foreign debt from Turkish companies surpasses 300 billion dollars.
For a better
understanding, this is the same amount of money spent in all of the bailouts to Greece.
And meanwhile,
the inflation rate is starting to grow little by little.
This year, 2018, it has already reached 15%.
And
all the non-governmental estimations say that, at the beginning of 2019, it will rise to
22%.
Turkey Cut Deeper Into Junk as S&P Sees Recession Next Year
Add to this the sanctions imposed by Donald Trump.
We will talk about the reasons behind the sanctions in
another video.
Here we want to focus on the economics.
Because in the middle of all this, there is
another player with a lot to lose: The European Union.
Banks like the Spanish BBVA, the French BNP Paribas or the Italian UNICREDIT have lent
more than 190
billion dollars to Turkish companies.
So far, BBVA has already lost half of the value of those
investments.
So you can already imagine the big gap that a Turkish collapse would leave.
So far, Erdogan has said he won’t ask for a bailout from the International Monetary
Fund and he will not
raise capital controls either.
But…
can he stick to his words?
We just don’t know.
All we know is that
both Qatar and China have already promised to help the Turkish economy.
But it is still too soon to see
what will happen.
So now the question goes to all of you…
Will Turkey become the European Venezuela?
Can this crisis trigger a bigger crisis all across Europe?
Could Erdogan pull everybody to the dark side?
Please leave your answers in the comment section below.
And also don’t forget to check out RECONSIDER MEDIA, the podcast that provided the vocals
in this episode
that were not mine.
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