The European Commission’s decision to recommend a partial suspension of talks will have no major adverse impact on Turkey’s economy in the short term and could even be positive as it removes a key uncertainty, analysts said.
European Union sources told Reuters yesterday the EU executive would propose freezing talks on eight of the 35 policy areas or “chapters” into which accession talks are divided, after Turkey refused to open its ports to EU member Cyprus.
Investors were worried that the Commission could recommend a full suspension of the talks. The EU executive’s recommendation came after talks brokered by the EU’s Finnish presidency on the Cyprus trade issue failed on Monday.
“This looks like a middle-of-the-road solution to me. Now it has been clear that the worst scenario will not happen and a key source of uncertainty has been eliminated,” Oyak Investment chief economist Mehmet Besimoglu told Reuters.
The EC avoided any call for a total suspension and set no new deadline for Turkey to comply on Cyprus, the sources said, averting Ankara’s worst fears.
Foreign investors care more about a continuation of Turkey’s entry process and do not expect a speedy accession, Besimoglu said.
The Turkish government is not expected to make concessions on Cyprus, which has been divided since 1974 along ethnic lines, just ahead of elections next year but this could change after general elections due in November 2007, analysts said.
Turkey has said it will open its ports to shipping from Cyprus if the EU fulfills a pledge to end the economic isolation of the Turkish-occupied north of Cyprus, which the internationally recognized Greek-Cypriot government in Nicosia has blocked.
“We may see more conciliatory steps from the government for a solution after the elections,” Besimoglu said.
What comes next?
Suspension of some key economic chapters such as agriculture and trade will have an economic impact as this will slow the Turkish economy’s harmonization with the EU, some analysts said.
“Though this decision has been expected, this will surely will make an impact on the economy as it will delay the economy’s harmonization,” said Haluk Burumcekci, chief economist at Fortis Bank in Turkey.
Analysts said they needed to know what will happen with the remaining chapters.
“Foreign investors now see Turkey as a promising country with a bright future and strategic importance. They will want to see what kind of road will be followed next,” he said.
EU prospects have underpinned the confidence of foreign investors, which have fueled high growth amid falling interest rates and inflation.
“It would be tempting to say that a removal of the full-stop scenario is a strong positive,” said Simon Quijano-Evans of Vienna-based CA IB.
“But given the unprecedented situation and the likely negative reaction of the domestic electorate and media in Turkey, a calming of sentiment is unlikely even if there is a short-term rally in markets.”
Turkish stocks rose 2.12 percent and and the currency strengthened 1 percent on Wednesday.
(Reuters, 29/11/2006)