A study into whether economic conditions right for Turkey to join the European Union
In this short study I explore the economic arguments for and against Turkish accession and consider whether the essential requirements for accession to the Union have been met or will be able to be met. I find that accession is viable for Turkey, albeit with substantial efforts on controlling inflation and harmonizing labour law to be undertaken in the coming years.
In 2005 the government of Turkey and the European Union began talks pursuant to the possible accession of Turkey to the Union as a full member. These talks occurred a full 18 years after its formal application for membership on April 14th 1987. The disparity between its application and the start of its negotiations is unusual, even more so when one considers that an optimistic expectation of Turkey’s eventual accession would be 2015. Croatia is expected to join the EU in 2010, 2009 if the ratifications of the Lisbon Treaty go smoothly. Croatia however applied for membership in 2003, 16 years after Turkey. Again the disparity is startling, and perhaps seems a little unfair. What reasons are there to explain this? The most obvious argument, frequently expounded by the French government is that Turkey is culturally and religiously estranged from Europe. Its Islamic background (regardless of Ataturk’s secular legacy) means it cannot integrate or be fully understood in the European community and would complicate the European decision making process. There are obvious hypocrisies to these arguments; Balkan states which have applied for membership and who are mainly Muslim countries do not face the same discrimination, also the many cultures of the EU are so diverse already as to be barriers to cohesion whatever the case. There are however better arguments for having reservations about Turkish accession, the most prominent of which is the economics of accession, or more specifically, are the economic conditions in Turkey, such as its business cycle and labour laws, in line with those of the EU enough for accession to take place in a stable and economically safe manner?
Savva, Neanidis and Osborn have found in their paper that Turkey has experienced a “sizable increase” in the synchronisation of its Business Cycle to the EU’s. This means that it is closer to convergence than it historically has been. In appendix A[i] one can see that the Business Cycles of Turkey and the EU are superficially closely matched. However, the overall correlation between the business cycles of the EU and Turkey are negatively correlated to the extent of -0.001. Other literature on this matter concurs with these findings, such as Furceri and Karras, who also found the two business cycles in negative correlation. The evidence would seem to suggest that the low synchronisation of the Turkish and EU Business Cycles would be an economic condition precluding Turkish accession at this time[1]. However, correlation figures for Croatia currently stand at –0.06. This is a greater negative than Turkey’s. Croatia is expected to accede between 2009-2010. Bearing this in mind one may assume that minor negative correlation between the synchronisation of Business Cycles is not a major issue for the EU and that Turkey has fulfilled this criterion for entry. This evidence of positive synchronisation is supported by Berument, Kilinç and Yücel in a paper entitled “Business Cycles in Turkey and European Union Member Countries.” They note that whilst basic evidence suggests “Turkey and EU countries have different economic dynamics”[ii], when analysing short-term synchronisation of industrial productions during periods of economic stability[2], the economic dynamics become more synchronised than when analysing the full time period (from 1986 onwards). One can see from appendix C that the cross-correlation between Turkey and ‘the Euro Zone’ as a whole is positive. Out of this umbrella, 16 EU countries have a positive correlation of industrial production with Turkey, notable among them France Germany and Spain. This suggests, along with the data about whole business cycle synchronisation, that Turkey would not suffer from economic instability, as has been suggested, by having non or negative correlating economic trends, meaning that acceding to the EU in this respect, will not be a problem.
Another major issue which requires standardisation with the European Union to achieve accession is the labour laws enumerated in the social chapter of the Acquis Communautaire. The Social Policy & Employment chapter of the Acquis was rated before negotiations opened on the matter as “considerable efforts needed”. There are large discrepancies between EU and Turkish labour standards, which are disadvantageous to the employee. In Turkish Law the right to freedom of representation is not given. Any association formed or entered into by workers may be disbanded in the interest of protecting public morals. Restrictions on the right to strike are also placed. Any manner of strike, picket, labour go-slow or other obstruction is prohibited if the cause is politically motivated. Women are barred from any form of employment involving underground or underwater positions such as cabling, sewage or tunnel construction. It is easy to see why the European Commission believes there will be problems in negotiations. The restrictions imposed above on Turkish workers would be slapped down by a court of any existing EU country due to their ‘contravention’ of EU Social Policy & Employment law. EU states, in both national and supranational law have the inalienable right not to be restricted in any action due to ‘moral concerns’. Freedom of expression, even of a political nature is guaranteed as a fundamental right in the “Charter of Fundamental rights” and the “European Convention on Human Rights”, both of which are non negotiable and corner stones of EU social policy. The Equality of Women is also provided for in these rights, which as one can see is lacking in Turkish employment law where they are restricted in their employment. Turkey’s situation with regards to labour law is not entirely bad news. Its legislation on working hours is within the parameters set by the EU working directive, part of the Social chapter. Turkish law requires employees to work no more than 45 hours a week, under the 48 hours determined by the EU. However, it is clear that overall, Turkey has not fulfilled the criteria set by the EU on employment and social welfare.
An issue which maybe of more concern to the Turkish government rather than current EU member states would be the Acquis chapter on Economic and Monetary Union[3]. Inflation in Turkey has for the past 2 decades been volatile with such spectacular examples as the 1980-81 period where it peaked at 110% and slumped at 30% (see Appendix B) and the 1994-96 period where inflation again rose to 110% before falling to 80%[iii]. This trend is still continuing, but to a lesser degree in 2003-05 where inflation dropped by 12% from 18.4% to 7.7%[iv]. This evidence shows that Turkey’s inflation is unstable and liable to repeat its wild swings in the future. The danger for Turkey in this instance is that by joining the EU, it will commit itself to joining the Euro as well in the near future. By joining the Euro, Turkey will cease to have the exchange rate mechanism as an option to maintain competitiveness on the world market during times of high inflation. Instead the Turkish government will have to respond by means of increasing taxes. This will immediately damage the competitiveness of Turkish products on the world market. Competitiveness will be further damaged by high inflation and an immovable exchange rate. The Euro exchange rate is so large that it only responds to pan-European influences. Therefore were Turkey to be a member of ERMIII[4], high inflation would cause it to lose competitiveness not only to the world market but also in relation to its fellow EU members. This surely would negate some of the economic benefits of being in the EU, namely, favourable trading terms within the single market. These possible effects also damage the strength of the Turkish application to join the EU as it would mean that Turkey, within the euro zone may not have “sufficient potential to stand up to competition and to market forces operating within the EU.”[v] This will be because its relative competitive advantage in the production of goods will be damaged.
Whilst there are promising signs of convergence and comovement between the Turkish business cycle with the European cycle, other conditions do not look as promising. Turkey’s volatile inflation promises only to damage Turkey’s economic prospects within the EU and on the world market and Turkish Labour law is virtually incompatible with European standards and will take a lot of time to change, as Turkey’s application process has already displayed. Therefore the conclusion on must draw from this is, at the time being at least, economic conditions are not right for Turkey to accede to the European Union.
[1] Whilst not acting as a barrier to accession indefinitely. Indeed the evidence drawn from this research suggests that synchronisation between the two business cycles has been occurring at a rapid pace and that correlation as it stands now will continue in a positive trend for the foreseeable future.
[2] Hence excluding times of crises, referred to in the paper as non-crises periods
[3] Note that for negotiations with Turkey this chapter of the Acquis Communautaire has been renamed Economic and Monetary policy
[4] The EU’s official name for the Euro, the last stage of the Exchange Rate Mechanism plan.
[i] “Business Cycle synchronisation of the Euro Area with the New and Candidate member countries”, Savva, Neanidis and Osborn, Manchester 2007
[ii] “Business Cycles in Turkey and European Union Member Countries”, Hakan Berument, Zübeyir Kilinç and Eray M. Yücel
[iii] “Leading indicators of growth and inflation in Turkey” Daniel Leigh, Marco Rossi
[iv] “From exchange rate stabilization to inflation targeting: The case of Turkey” Gulbin Sahinbeyoglu Central Bank of Tukey, February 2007
[v] European Works Council, http://www.ewc-finance.be/home/index.cfm?contentId=3_eu_voorwaarden&langId=en
[...] The Turkish market would be a valuable contribution to the single market as it is large and dynamic (with central bank reforms combating inflation ongoing). [...]