2012 will be a year to hoard cash rather than to spend or invest. It will be about staying solvent. Since the beginning of the 2008 crisis, Europe’s troubles have been helping Turkey to sustain the unsustainable. The crisis has created a savings surplus in Europe, which is rather useful for Turkey in the short term. Turkey’s healthy banking system was also useful as a rapid output recovery process after the big slump of 2009. Turkey was one of the worst hit and among the fastest to recover during the last couple of years.
Approaching 2012, the nature of the European crisis is changing. European governments will soon have to pay the price of mismanagement. Funding rates are increasing and deleveraging has come knocking on the door. That means double jeopardy for Turkey. We are not only going to be influenced adversely from the foreign trade performance but also from financial markets. Lower growth, a depreciated lira and higher interest rates will determine 2012.
Maverick central banking will exacerbate the situation. This year taught us that maverick central banking without a coherent storyline will only lose credibility. I first thought of it as creating constructive ambiguity at a time of rapid change. Constructive ambiguity is a concept borrowed from international relations. Kissinger used it to refer to the calculated use of ambiguous language. It seems that in central banking, constructive ambiguity might be good for a few weeks or months at most but then becomes rather destructive. After a while it turns into the regular, annoying kind of uncertainty.