Turkey is paying the price of Erdogan's ambitions

No one should be surprised by Turkey's recent economic and financial woes. The country's triple crisis (currency, banking, and sovereign debt) has been unfolding for years. Whether this economic turmoil will incite political turmoil is now a widely debated question.

How long can Turkey hide the fact that it is spending far beyond its means? Normally when governments spend more than they tax, the difference appears as a budget deficit. They fund that deficit by issuing bonds, which are traded on international markets and so are easy to track. If the debt load grows too large, and if borrowing costs spike, then then country must default or seek a bailout. 

It is difficult to point to a single reason for Turkey’s economic woes. But one factor that is often overlooked is the country’s foreign policy. Erdoğan’s aggressive and costly ambitions, aiming at establishing Turkey as a regional power, appear to be backfiring in ways that are undermining investor confidence.

Turkey’s assertive stance in the region has been raising eyebrows in western capitals for a few years now. Most recently Turkey has been aggressively pursuing the expansion of its maritime boundaries at the expense of Greece and Cyprus through an agreement with one of the warring parties in Libya’s civil war.

Meanwhile Turkey has become heavily involved in the Nagorno-Karabakh conflict in a disputed region of the South Caucasus. Ankara has provided arms as well as manpower to Azerbaijan in the form of Syrian opposition fighters.

This assertive foreign policy forms a cornerstone of Erdoğan’s neo-Ottoman aspirations for Turkey in the region. Coupled with a heavy nationalist rhetoric, these actions are also used to increase the Turkish president’s domestic legitimacy and increase his popularity by presenting himself as the restorer of national greatness.

But this has come with a price for its economy. Erdoğan’s regional ambitions are placing a heavy strain on an economy which is also struggling to cope with the COVID-19 crisis.