Ankara/Brussels: – The record decline of 20% in the value of the Turkish Lira in just 24 hours signals a new challenge before the European economy. Turkey has outstanding loans worth more than 100 billion Euros with the European banks, and if these loans turn bad, there could be a major crisis in the European banking industry. Moreover, this blow could act as a trigger for recession, claim the economists. Turkish President Recep Erdogan has termed this decline in the value of Lira as ‘missiles fired by the enemies of Turkey in the economic warfare’.
Turkish currency Lira saw a record slide of 20% in its value on Friday, and its exchange rate against the US dollar dropped to 7 Lira. The value of the Lira per US dollar has declined by about 50% in the last year, and indications are that the decline will continue in the near future. Nevertheless, Friday’s record slide was said to be the effect of the import taxes imposed on Turkey by US President Donald Trump.
US President Trump had accepted that the relations between the US and Turkey have fallen apart and announced the imposition of taxes on Steel and Aluminium. Accordingly, the taxes on the Turkish Aluminium being imported have been raised up to 20%. At the same time, the tax on steel has been raised to a level of 50%. President Trump had retorted in his tweet saying that ‘the Turkish Lira, slides rapidly downward against our very strong Dollar!’
The rapid decline in the Turkish Lira has been revealed to be the effect of the intense conflict between Turkey and the United States. However, Turkish President Erdogan continues to assert that his economy is still strong. Erdogan said that the taxes and sanctions imposed by the United States are a part of economic warfare and a plot to weaken the Turkish currency. Also, it will not affect manufacturing and the real Turkish economy, clarified Erdogan.
Whatever may be the claims made by Erdogan, the decline in Lira is likely to affect Europe. Banks in Spain, Italy and France have lent more than 108 billion Euros to Turkey. If these loans are not repaid on schedule, the banks in the European Union may face significant losses. Albeit, the repercussions of this may be felt even on the European markets, and this can trigger an economic slowdown in Europe, warned analyst Neil Wilson.
Former US diplomat Bob Hormats has also indicated that the Turkish currency crisis may hit the European banking industry. The US diplomat pointed out that the European banks have a huge stake in the Turkish economy.