It came in Berlin, where Erdoğan said Turkey will not join the eurozone once it is the member of the European Union, in first such a public proclamation by a high-level Turkish official. He proposed Turkish “lira zone” to emphasize confidence of neighboring countries in Turkish economy and an implicit comparison between Turkish economy and the eurozone economies.
No doubt Erdoğan’s statement is a clear expression of his nationalistic views rather than a thought-provoking economic idea that could help find a solution to Turkey’s deepening crisis in closing gaps in current account deficit, growing cleavage of export-import imbalance and high energy costs that in turn makes virtually everything in the country more expensive and thus drives up already soaring inflation.
Erdoğan attacked the euro as the chief culprit of the economic crisis in the southern belt of the eurozone and overlooked the significance of “zone” that shares most of the eurozone’s woes. His proposal to create another zone is a clear evidence that he sees the euro as a currency being sick not the eurozone.
Euro remains one of the strongest and most stable currency in the world. Although it is not as much used in financial transactions across the globe as the U.S. dollar, many countries still view it reliable to hold large reserves of euro as foreign currency as a way of stabilizing their economy.
The primary problem at the heart of the eurozone crisis is that the area has one currency with many fiscal policies and countries that are in deep recession like Spain and Greece have hard times in digesting top-bottom austerity policies imposed by heavyweights like Germany and France upon them.
Erdoğan’s proposal to create a Turkish lira zone has little if any benefit to Turkey’s economic woes. Turkey could create strong Turkish lira only by abandoning protectionist measures that will also set away its current account deficit problem. It could hence create strong Turkish lira that might be used in neighboring countries as the third currency. It could export more Turkish lira from its economy to neighboring countries if need be but avoid imposing on countries to adopt Turkish lira as their national currency. That would be the mistake the EU made a decade ago.
Except Iraq and Azerbaijan, most countries in Turkey’s vicinity that could be likely candidates to adopt the Turkish lira import more than their export. It means they will constantly keep exporting their foreign currency reserves. This is another reason why Turkish lira would be in worse crisis once neighboring countries keep using it.
There is a reason why American dollars remain the king of currencies. It is because it is being used only in one country, which is democratic and has very vibrant, liberal economy.