Euro crisis 'ticking bomb' for Turkey
GÖKHAN KURTARAN ISTANBUL - Hürriyet Daily News
Influential economist Daron Acemoğlu warns Turkey on the eurozone crisis. DAILY NEWS photo, Emrah GÜREL
The eurozone debt crisis has turned the European economy into “a ticking time bomb” that lies at Turkey’s door, according to a top economist who has been ranked among the most influential thinkers of our time.
Speaking to the Hürriyet Daily News in an interview last week, Daron Acemoğlu, a professor at the Massachusetts Institute of Technology (MIT), also urged the Turkish Central Bank to raise interest rates from their current historic lows.
“The European time bomb lies at the door for Turkey,” Acemoğlu said. “The Turkish economy is closely connected to the European economy. Thus, it is open to all possible shocks.”
Regarding the possibility of a new global recession, Acemoğlu put the chance as high as 50 percent. “If there is a new recession in Europe, Turkey would go back to experience 2009 once again,” he said, a year when the Turkish economy contracted by 4.7 percent.
Despite the positive effects of economic reforms, Turkey should “increase interest rates” in order to put the brakes on strong domestic demand, Acemoğlu said, adding that such a move would provide the policy flexibility that would be necessary following a possible shock from the eurozone.
The Turkish Central Bank’s one-week repo rate remains at 5.75 percent, while the overnight interest rate corridor stands at 5 to 12.5 percent. Year-end inflation target is at 5.5 percent, but many analysts foresee it exceeding 9 percent. Meanwhile, Turkey’s current account deficit has neared 10 percent of gross domestic product – unsustainable in the eyes of many economists.
“Turkey aims to slow down credit expansion while keeping interest rates too low. This is not the right thing to do,” Acemoğlu said. According to the 44-year old economist, today’s Turkey has similarities with the pre-crisis period of U.S. and European economies.
“A key [sign] of an economic crisis is overspending and overconsumption, which generally is followed by a sharp decline in consumption later on, creating serious problems,” he warned.
Low savings rate the problem
Underlining the chronic current account gap, Acemoğlu recounted the booming 1990s, which ended with the 2001 crisis.
“Nearly 60 percent of Turkey’s exports are to the European market,” he said. “A possible slowdown in the eurozone could create problems regarding the financing of the current account deficit.”
The current low interest rate policy “encourages people and firms to spend rather than save,” according to Acemoğlu, who pointed toward the low savings rate of around 12 percent of gross domestic product.
Putting pressure on banks to lend less instead of raising interest rates is “a wrong method,” Acemoğlu said, adding: “A key reason that the country should raise interest rates is to have the possibility to cut the rate in case a serious crisis [in the eurozone] occurs. If you keep rates low while the economy grows by 10 percent annually, what will you do when the crisis hits?”
Regarding the possibility of being added to the BRICS grouping, Acemoğlu said it was too early for this. “Turkey needs to prove its sustainability for some four or five more years,” he said. “One cannot see Turkey as an economic model just because it has posted [high economic growth]. What matters is turning this into a sustainable and balanced economic growth.”
Acemoğlu also described Kemal Derviş, a former economy minister who steered Turkey out of the 2001 crisis, as the man who planted “the seeds of Turkey’s 10 years of economic growth.” Compared to Derviş, today’s technocrats in Italy’s Mario Monti and Greece’s Lucas Papademos have a major disadvantage in that they are “running not just the economy ministry but the whole government,” Acemoğlu said.
Proud of Turkey’s OECD offer
Reminded of Turkey’s offer to appoint him as the permanent representative to the Organisation for Economic Co-operation and Development (OECD), Daren Acemoğlu said he was “proud” of this offer. “I have not rejected it, but I prefer to write my books and continue my academic life,” he said. “Maybe I can consider this offer in the future.”
If he had accepted, Acemoğlu, who became a professor at the age of 33, would have been the first Turkish-Armenian to have been appointed to such a post.
In March, Turkish Foreign Minister Ahmet Davutoğlu confirmed the offer, saying that it was “inconceivable” for the government to discriminate between the citizens of the Turkish Republic. “We can appoint everyone [who is qualified] to represent Turkey. In this respect, the main criterion for us is qualification. Indeed, we have offered Daron Acemoğlu to represent us at the OECD a few months ago,” Davutoğlu said