the 13th lived up to its name in the final hours of the day with the passing of
Turkish football legend Lefter
Küçükandonyadis and Turkish-Cypriot leader Rauf Denktaş.
men had been having health problems for a while. Lefter was probably devastated
by the match-fixing
allegations, which have put his beloved Fenerbahçe’s
president behind bars despite
a lack of any solid evidence. But the suffering they went through in their
final days is nothing compared to the Eurozone’s slow death.
before the clock hit midnight, credit rating agency Standard & Poor’s, or
nine Eurozone countries, including AAA-rated France and Austria. Those two were
cut one notch, while Italy and Spain went down two notches and Portugal was
downgraded to junk.
these downgrades were to lead to general risk aversion in markets, it would be
devastating for the Turkish economy. The Central Bank of Turkey’s main
scenario of lira appreciation in 2012 assumes that some of the extra
liquidity being provided by the European Central Bank, or ECB, will find its
way to Turkey.
there is no reason to expect a “sudden stop”
yet. Friday’s downgrades were completely expected. If you really thought that
France was “risk-free” (what AAA means) or that Portugal, with its ten-year
bond yielding 10 percentage points more than Germany's bunds, was
investment-grade, please tell me what you've been smoking. I need to escape
reality as much as I can.
fact, the yield on neither French nor European
Financial Stability Facility, or EFSF, bonds rose by much after the
announcement, although the euro dipped against the dollar. However, S&P
will also downgrade
the EFSF very soon, unless Eurozone officials restructure it to maintain
its risk-free rating, in which case the fund would shrink.
first glance, this does not seem to be as bad as it sounds for Turkey. With the
EFSF weakened, it will be up to the ECB to support the Eurozone, which would
mean even more of that liquidity that the Central Bank of Turkey would like to
even if this emerging markets-friendly scenario materializes, the downgrades
also mean that European banks, according to the new Basel rules, will have to set
aside more capital for their sovereign bond holdings. Unless the ECB comes to
the rescue, they will then have to deleverage, by an amount even greater than
the $ 2-2.5 trillion most analysts were estimating before Friday.
is where the real danger lies for Turkey. BIS banking statistics
reveal that Eurozone banks are holding more than $ 150 billion of net foreign
claims on Turkey- a hefty sum even if this exposure were to be reduced by 10
could argue that local-currency claims do not require external funding, and
they barely moved during the post-Lehman crisis period. Three-quarters of Greek and two-thirds of
Spanish banks’ exposure are in liras. But even the sum of cross-border claims
and local claims in foreign currency amounts to almost $ 90 billion.
hope the ECB will save the day, and I will smile at my pessimism. But if it
doesn’t, the debate on whether
Central Bank of Turkey’s reserves are enough could move in a brand new