Spain, one of the countries most exposed to the crisis in Turkey

BarcelonaSpain is one of the countries most exposed to the crisis affecting the Turkish economy. The country headed by Recep Tayyip Erdogan is suffering a significant rise in inflation which is increasing the cost of living of the population. One of the causes of this rise is the depreciation of the national currency, the lira, which only lost 30% of its value in November.

The evolution of the Turkish lira in the foreign exchange markets is one of the main headaches for the Erdogan government. As can be seen in the attached graph, the currency has lost more than 85% of its value in just over a decade compared to the euro, an evolution similar to that recorded with the exchange rate of the world’s major currencies. , such as the dollar or the yen. This has a two-way impact on Turkish foreign trade. On the one hand, the exports of Turkish companies are getting cheaper, as it is becoming cheaper for foreigners to buy lire, but on the other hand, if the Turks want to import foreign products, everything will be much more expensive for them. they will have to change their currency for a higher price to get euros or dollars.

The second phenomenon, the rise in imports, is one of the reasons behind the sharp rise in prices in the country, where this year the government expects it to be around 20% a year. By comparison, prices in the euro area will grow by 2.6%, according to European Central Bank forecasts. A 16% to 15% cut in interest rates announced by the Turkish central bank in November to revive economic activity in the midst of a pandemic could lead to even more inflation in the country.

The approved rate cut by the monetary regulator and the possibility of it repeating itself in the near future “have led to a deterioration in domestic confidence which has been reflected in a sharp depreciation of the Turkish lira,” the agency said in a statement. of US rating Fitch, which lowered the outlook for the Turkish government debt rating from stable to negative. “Turkey has entered this new period of stress in a vulnerable position,” the document said.

The Spanish banking sector is the one that can most notice the consequences of this deterioration in the economy, marked mainly by the loss of value of the currency. Spanish banking is by far the most exposed to Turkish assets, with close to 63 billion euros. The bulk of the exhibition is accumulated by BBVA, which has its third market in Turkey – the first is Mexico and the second is Spain – where it had a turnover of 563 million euros in 2020, 14% of the total group.

The entity of Basque origin has tried to take advantage of the weakness of the lira to gain control of 100% of Garanti, one of its subsidiaries in the country, but at the same time may suffer in terms of income and profits in Turkey, both because the ‘economy is not in a good time because the business it has in the country, of course, is carried out in pounds, which lose value day after day. Following the announcement by BBVA, the three MEPs from Junts –Carles Puigdemont, Clara Ponsatí and Toni Comín– sent a written question to the European Central Bank on the risks involved in the operation and exposure to the Turkish market for entity and all Spanish banks.

Navantia, the other big exhibit

Spain is one of the states in the European Union that has a closer relationship with Turkey. Both countries are NATO partners, which facilitates cooperation between governments on defense. In fact, the sale of arms is one of the main economic sources of discussion – and agreement – every time Erdogan has met with presidents of the Spanish government, both Mariano Rajoy before and now Pedro Sánchez. In 2018 Rajoy added a confidentiality clause to war material sales in Turkey.

The main beneficiary of the latest Spanish-Turkish arms sales agreements has been the company Navantia. The Spanish public shipping company created a consortium in 2015 with the Turkish Sedef for the construction of the light aircraft carrier TCG Anadolu, which will join the Turkish naval forces in 2022 and is designed from Juan Carlos I, the largest ship in the Spanish navy. This project, which included the possibility of making a second ship, has a cost of about 275 million euros.

In this sense, the 2015 agreement was noticed in the arms trade between the two states. Prior to that date, sales of Spanish war material in Turkey strangely exceeded 100 million euros – with the exception of 2012, when they were almost 503 million – but have since skyrocketed. Between 2015 and 2020, the Spanish defense industry exported more than 4,175 million euros, making the Eurasian country one of its main markets, according to data from the Ministry of Industry, Trade and Tourism. A deterioration in the lira and the Turkish economy could reduce these figures.

In addition, it should be borne in mind that these arms sales have cost Spain the protests of two EU partners, Greece and Cyprus, who have a long hostile relationship with Ankara over control of the Aegean Sea. The escalation of the past escalated into the armed conflict – and the Turkish occupation of northern Cyprus since 1974. To the point that in June the government of Athens informed Navantia that it was excluded from a public tender for value. of 5 billion euros to build frigates for the Hellenic navy, while maintaining in the selection process the other six companies – all foreign – that had applied.

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