Merger targets reassess their value
TURKEY'S 41-YEAR-OLD quest for membership of the European Union is fast nearing make or break-point since a December decision by the EU leadership will either pave the way to the opening of formal negotiations or kill the attempt stone dead. The decision, most analysts in Turkey say, will either breathe new life into what is still a fragile economy or send it reeling.
Although Turkey would still be several years away from EU membership, a favourable decision in December could initiate formal candidacy. After reviewing the results and recommendations from an annual October progress report prepared by the European Commission, the EU's Council of Ministers will decide whether Turkey has met the basic criteria to launch formal membership negotiations. The announcement will include a timetable, with negotiations expected to begin in June or July 2005. They involve protracted bargaining over time and terms for Turkey to embrace and adjust to the 80,000-page acquis communautaire, the body of rules and regulations that governs everything from sanitary rules in cheese manufacture to carbon dioxide emissions from cement plants.
If the Council of Ministers concludes that Turkey has failed to meet the Copenhagen Criteria laid down in 1993, Turkey's EU project is off and a process that began in 1963 with the Ankara Agreement, which associated Turkey with what was then the European Economic Community, will have come to nothing.
"If Turkey gets the green light, it's hard to overstate the good news for macro stability, for credit flows, for foreign investment and for the Turkish markets in general," says Gunduz Findikcioglu, chief economist & research manager for the Turkish Industrial Development Bank. "But a rejection leads to a radically different scenario. Turkey's financing requirements will be even higher in 2005, assuming growth pursues at the current speed. Should there be a current account-driven crisis indeed, it will make the 2001 crisis pale in comparison and the virtual certainty of default of foreign debt."
That so much could ride on a single decision by the EU bureaucracy seems extraordinary. And few Turks harbour illusions about the general European public's willingness to embrace an Islamic country they associate mainly with the migrant workers in their midst.
"We know that Turkey is not yet a perfect democracy and there are still challenges," says Bahadir Kaleagasi, the Brussels representative for Tusiad, Turkey's powerful business association. "But we are well past the test of a critical mass of reform and now it's a test of Europe as well. It takes a great deal of political vision to embrace Turkey and embrace an inclusive twenty-first century. But the process will lead to more stability, to transparency and prosperity and growth."
It's not just that Turkey needs the EU as a driver of economic growth through foreign investment, increased trade and aid, says Soli Ozel, a professor at Istanbul's Bilgi University. EU membership, he says, has become the shorthand for reform in virtually every sector as Turkey's indigenous forces for change in areas from education to human rights have coalesced behind the promise of the EU's blue banner and its field of gold stars.
Europeans might harbour reservations about admitting Turkey: Turks have no such doubts about wanting to join.
"I don't think the Europeans ever expected that Turkey would be able to move so quickly to meet the basic Copenhagen Criteria," Ozel says. "But the consensus in support of EU membership cuts across society in almost every way. It has become a referendum on our identity. We have met the criteria, the Europeans have run out of excuses to push us away and it's difficult to imagine what the backlash will be if we are rejected at this late date."
In financial circles, two events have combined to give new urgency to the EU talks and the related renewal of a stand-by loan facility from the IMF. One is the last-minute unravelling in July of plans for a merger between Turkey's third-largest bank, Garanti Bank, and Italy's Banca Intesa. It is the second time the two have failed to consummate plans. Among the reasons cited by Ferit Sahenk, chairman of Garanti's parent, Dogus Group, is the expectation that a better deal can be found. If Turkey looks on course to join the EU, more suitors might yet emerge.
Fragile banking sector
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Ozel: "the consensus in Turkey in
support of EU membership cuts
across society in almost every
way. It's difficult to imagine what
the backlash will be if we are
rejected at this late date"
|
The second issue is the restructuring of a set of accords between banking regulators and the Cukurova Group, the parent of Yapi ve Kredi Bank. Yapi ve Kredi avoided seizure at the height of the banking crisis with a deal to repay troubled loans to its parent over 15 years and ultimately to sell the bank. That deal was renegotiated in July and August to reduce the repayments from $6 billion to $4 billion while cutting the repayment time frame to two years. Although the deal was generally welcome in financial circles, it raised two questions: how will Cukurova raise the money and does it have a suitor in mind?
All hopes for a happy end to Garanti's search for a partner and Yapi ve Kredi's resolution of its NPLs to its parent – with our without a foreign partner – depend on good news in December from the EU.
"The result of these two developments is that the banking sector is left ever more fragile and the consensus is that for things to go well, both a new IMF accord and agreement with the European Union are essential," says Erdal Saglam, a financial writer for Turkey's largest daily, Hurriyet.
Although Turkey's association with the EU dates to 1963, it was only in the 1990s that the prospect of membership gained momentum. In 1995 Turkey signed a customs union with the EU, the only candidate state ever to do so as Turks like to remind anyone who will listen. In 1997, after the EU's Luxembourg Council of Ministers' meeting declared that Turkey was at that point ineligible for membership, planning got back on track. Since 1999, Turkey has been back on its EU roadmap, culminating with the December 17 summit of the Council of Ministers. Should the ministers fail to be impressed with Turkey's readiness, there is no Plan B. Several European politicians, including former French president Valéry Giscard d'Estaing, have floated trial balloons, including a "special status" for Turkey as envisioned for the Ukraine.