On paper, Turkey’s economy is growing every year. But the average Turkish citizen hasn’t noticed it in years, my relatives tell me when I talk to them. In fact, it is getting poorer every year. They talk about several people they know who have worked two full-time jobs and still aren’t making money. The reason: high inflation accompanied by an artificially low interest rate. And that for consecutive years.
Inflation is rising rapidly in Europe. Dutch inflation has not been this high since 1982, at 5.2 percent. It cannot be compared to Turkey, where the inflation rate is around 20 percent. But in terms of interest rates, we are doing much worse than the Turks. The interest on savings here is from 0 to negative, while Turks often get more than 10% interest on their savings.
The most disturbing similarity between Europe and Turkey is that the negative gap between interest rates and inflation persists artificially. in Turkey by an authoritarian leader. in Europe by the European Central Bank, which fears that southern European government debt will become unsustainable if interest rates are allowed to rise (the usual medicine for high inflation).
Of course, the European situation (so far) is not comparable to Turkey. But it can’t hurt to take a look at what this prolonged combination of high inflation and ultra-low interest rates has led to in our EU neighbour. It has severely eroded Turkey’s purchasing power.
People I talk to say that in Turkey today there are long queues at gas stations. I also heard that buying on credit in Turkey is back in business. And my cousin Ella told me that people collect credit cards these days. “With one credit card they pay off the debt on the other. And if it doesn’t work out, they take another credit card.”
My cousin Tioman works as a circular economy specialist. He complains that his income has fallen to the equivalent of 2,000 euros per month. Since he owns a house that is almost occupied by his owner, he is able to make ends meet. “But I don’t understand how people who receive care and education can make ends meet,” he says. The teacher, now transferred, charges less than 600 euros per month. The pension for the elderly Turk decreased from 450 to 200 euros per year.
Turkey and the Turkish lira started declining ten years ago now. Erdogan’s latest scapegoat is the currency dealers. It is they who are helping Turkey into the abyss, not interest rate policy, as he regularly does. Earlier, he referred to an alleged international lobby group that would deliberately attack Turkey financially.
Inflation and loss of purchasing power are the talk of the day on every street corner in Turkey. Less attention is paid to this in the Turkish media controlled by Erdogan. Foreign news dominates Turkish news bulletins these days. For weeks, there has been talk of a possible Russian invasion of Ukraine. Racism and Islamophobia in the United States and European countries are other popular topics.
Another family member says: “We are clinging to the elections of 2023.” But many Turks in major cities and coastal regions have been doing this for more than ten years. In the end, Erdogan manages to win every time – with massive support in the conservative and low-skilled interior.
For the Turks, this is a bad prospect. Because Erdogan has recently been more insistent in his policy of cutting interest rates to boost the economy. He fires any central bank manager who wants to go in a different direction.
In Europe, too, stimulating the economy has been a reason why the European Central Bank has kept interest rates low for years. Here, too, this policy is becoming increasingly unacceptable due to rapidly rising inflation. In order not to have to raise interest rates, the European Central Bank constantly declares that high inflation is temporary. More and more economists are openly skeptical about this.
Will the European Central Bank, unlike the Turkish Central Bank, have the courage to raise interest rates (significantly) if inflation turns out to be permanent? We can only hope so. But even in this case, our purchasing power is permanently affected. A year or two of 4 to 5 percent inflation with wages barely rising, means there’s a permanent gap on most household books.
We can only compensate for the loss of purchasing power (afterwards) by increasing wages more quickly. But again, it leads to inflation and a terrible vortex of wage prices. Will Turkey remain our land?
Eileen Bellick He is an entrepreneur and publicist.
A version of this article also appeared in NRC on the morning of December 9, 2021
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