Daily Briefing

Turkey could be triggering the next financial crisis

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Don't panic. Source: DPA

We’ve seen this horror movie before: A developing country slides into an economic crisis. Its currency drops. Its companies, having borrowed in dollars, suddenly face bankruptcy. Their defaults threaten Western banks that had lent to those firms. That spooks the financial markets, and suddenly the crisis is global. The IMF steps in, backed by its largest shareholder, the United States, which is also the world’s de facto lender of last resort.

But this time there is a twist. The narrative above described, say, Thailand or Indonesia two decades ago, and various other crises. The drama now unfolding in Turkey is different, because the US is not the savior-of-last resort but the aggressor. It was The Donald’s sudden escalation in the constant Turkish-American bickering that turned a merely declining Turkish economy into a plunging one, after he doubled American tariffs on Turkish steel and aluminum.

The markets now see two men, Donald Trump and Recep Tayyip Erdogan, playing chicken. But in violation of the usual assumptions in game theory, both are less than rational, and possibly bonkers.

Going into this showdown, the list of grievance was long. Since the attempted coup d’etat against him in July 2016, Erdogan has been demanding that the US extradite Fethullah Gülen, a preacher who resides in Pennsylvania and whom Erdogan blames for the putsch. He is also angry that the US supports a Kurdish group which Erdogan labels terrorists. In return, Trump demands that Erdogan free Andrew Brunson, an American pastor in Turkey whom Erdogan has locked up on suspicion that Brunson is in the Gülen network.

Now, writing in the New York Times, Erdogan accuses Trump of waging all-out economic war, and unsubtly warns that Turkey will look around for other allies. Russia and China, for a start!

Great job, Donald. A quick recap: 1) Turkey is part of NATO, which you, POTUS, have already been dissing, to the delight of your pal Vladimir Putin. 2) Turkey and Russia are meddling in Syria, on the side opposing the one favored by you. 3) Turkey, via its refugee deal with the EU, is also the gatekeeper of the Balkan route for migrants to Europe. 4) European banks, especially in France, Italy and Spain, have stacks of loans to Turkish companies on their books that will now turn bad. This could become not just a financial crisis, but a humanitarian and geopolitical one as well.

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Andalusia in southern Spain is a perfect place to talk about migration between Germany and North Africa. A large horde of German refugees, the Vandals, once stopped by, did their thing, and then moved on to northern Africa. They even left their name behind, dropping only the “v:” Al Andalus. Some time after that, it was the Africans’ turn to cross the straits. They stayed for centuries.

Now they are coming again, but under different circumstances. About 24,000 Africans have crossed to Europe on the Spanish route already this year, making it the largest vector of migration. They are arriving just a few kilometers from the venue where Angela Merkel was meeting her Spanish counterpart this weekend to find a common stance on this issue. Merkel, whose table manners were incontestably superior to those of her Vandal ancestors, and Pedro Sánchez, sworn in only two months ago, presented a picture of cordiality.

As they were meeting, a new arrangement between Spain and Germany took effect, under which refugees who have already registered in Spain but move on to Germany will be sent back to Spain. That deal is cosmetic, because it will barely apply to any real-world cases. But it underlines the political will by Merkel and Sánchez to jointly counter what Merkel called the “racist tendencies” in European politics these days and to find a common European policy. Next stop: Salzburg, Austria, where the pair have to convince the other 26 leaders at the next EU summit.

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Deutsche Bank has long been the butt of jokes, as it stumbles from one legal problem to another while slowly sinking in the unprofitable mire of incompetence. But wait. Maybe we outsiders have missed something in this sorry tale. That, at least, is what the buy orders by two notable board members suggest.

Especially the investment by John Thain, who in July bought slightly more than €1 million worth of Deutsche shares in his private account, made shareholders sit up. Thain is a long-time Master of the Universe on Wall Street and was the last boss of Merrill Lynch before it went to Bank of America. His purchase is the biggest by an insider that anybody in Germany remembers. And it follows seven years when no board members at all bought shares in the bank, during which time the price fell by 60 percent. Thain must know something we don’t. We’ll keep paying attention.

Andreas Kluth is Handelsblatt Global Editor-in-Chief.

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