Mr Trump certainly picked his moment. While the lira was crashing on Friday (that is not hyperbole — it dropped by 16 per cent on that day alone), he swooped in to declare that he was doubling tariffs on steel and aluminium imports from the country. What is more, he suggested with his own special logic that this was a specific response to the slide in the lira “against our very strong Dollar!”
Mr Trump did not start the lira’s slide, far from it. He briefly made it worse, though. And crucially, he provided President Recep Tayyip Erdogan with precisely the cover he has been seeking.
Turkey’s problems have been bubbling up for years. The reliance on foreign money has been high and inflation has been in the double digits, leading to persistent calls for higher interest rates, precisely to guard against a collapse in the lira that would land foreign currency borrowers in trouble. For many foreign investors, the Turkish central bank’s failure last month to raise interest rates was the final straw.
Nonsense, is Mr Erdogan’s reply. He has insisted that high interest rates cause inflation, and has surrounded himself with “yes men”. Calls for higher rates are part of an international conspiracy to talk Turkey down, he suggests, with allusions to a shadowy “interest rate lobby”. Economic orthodoxy be damned.
In truth, the lira’s woes are home grown. They are also home fed; On a recent holiday on the Aegean coast, I found local shops and bars were unusually keen to be paid in sterling. “You see,” one boat trip salesman explained, flashing a wallet stuffed with £20 notes, “I store it up, and keep it to the end of the month, and then it is worth more.”
When locals consider sterling to be a hard currency, you know you are in trouble. (He would have taken any foreign currency, to be fair. It’s just that our pasty complexions gave us away as Brits. The boat trip was lovely.)
Until now, those outside Mr Erdogan’s party faithful have been able to laugh off his blame game. Sage voices around the president, particularly before the June election, have worked hard to take the sharper edges off his instinct to lash out. When he declared interest rates to be “the mother of all evil”, they launched a briefly effective charm offensive to keep wary investors on side.
Some of those aides have now been shoved aside. And, thanks to Mr Trump, the Turkish president can reasonably say: “I told you so.” There really is a US effort to kick him when he’s down.
This, alas, will probably make Mr Erdogan even less likely to admit mistakes and use sensible but painful measures to fight the falling lira, despite the scars it leaves on an economy that imports almost all of its oil.
Already, he is fighting fire with fire, seeking to bar imports of US electronics and bumping up tariffs on American booze, cars, and tobacco. That means that, in a neat symbiosis, Mr Trump can also point to overseas skulduggery seeking to undermine US business.
More practically, Turkish regulators on Wednesday clamped down on foreign banks’ ability to place or facilitate negative bets on the lira. This does not neutralise the underlying investor urge to short Turkey. Much will depend on how Turkey responds to US calls to release a detained pastor. But it has lifted the lira from its lows.
Mr Erdogan may be the reigning champion in blame deflection, but he is not alone. Luigi Di Maio, Italy’s deputy prime minister, this week railed against external forces: “If someone wants to use the markets against the government, it must be known that we cannot be threatened.”
For the new Italian coalition, targets of ire include the EU and the European Central Bank. European budget commissioner Günther Oettinger had to apologise in May for suggesting that markets would teach Italians a lesson for voting for populists. In June, Italian government aides accused the ECB of “fixing” the bond market to put them under pressure. There was a grain of truth: the ECB had scaled back the proportion of Italian bonds it was buying at about that time. The reasons were tedious and technical, but such details did not matter to those painting the ECB as a bully.
With US interest rates rising and ECB support pulling back, the bedrock of support for risky markets is shakier. Weak links will be punished. Keep an eye on those who blame anyone but themselves.
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