Istanbul he has produced a rich body of Scholarly Research on topics including u. S. Turkish relations and turkish trade policies and Foreign Trade policies, the author of several books, the newest entitled turkey and the west fault lines in a troubled airline just came out in july. You can purchase it here if you like. We are very grateful to him for taking the reigns and i will leave to it him to introduce the panel and lead the conversation from now until 12 30. Please welcome him and the panel. Thank you. [ applause ] thank you. Im delighted to be here. Im not not sure whether ill be able to reign the panel as eliso has done and not sure i can speak as soft as she has been able to do. Please bear with me. Theres a lot that will need to be covered here. Oat in the program we have our honorable first speaker member of the European Parliament. I have sought his permission to allow me to start with a professor from the university of maryland. Right now, she has a fellowship working also with the fed as well as imf. I thought we could start with a bigger picture. And then finally, somewhere along the line, we will get to taspinar, my good friend and professor at National Defense university. There is a puzzlement. The puzzlement is that almost every month we read in the papers how the turkish growth rate is creeping up. It keeps going up. The turkish government frequently uses it as a sign that against all odds, turkey is doing very well. But simultaneously we also read the way in which the inflation rate creeps creeping up, which my limited knowledge of the economy suggest this is the kind of relationship we would expect there to be. But yet then the third leg of the economy is employment. Employment rates are not going up. If anything, unemployment is increasing. So how can we really square this circle, as the expression goes, and help us to understand what are the dynamics that are prevailing in the turkish economy right now. Thank you very much. Let me first start by thanking the middle eastern students for inviting me here and told no give very short answers. How can we be reconciled, short answer, we cannot. So thats the short answer. Let me explain. It is true that when we have very fastpaced growth, upward growth, gdp growth, that has high inflation rates but also has to be accompanied by decreasing unemployment rates or increasing unemployment rates or Central Bank Policy if they are independent raising interest rates. That is standard Economic Business 101. You can see the application in the United States, europe, china, india, emerging country, doesnt matter. If youre a fast growing economy out of control, overheating you will see high inflation growth and unemployment rates somewhere around 4 or 5 the central bank you raise interest rates. To rein in inflation. This is clearly not the case. Turkeys economy in reality slowed down considerably since 2007. Let me correct something in the Previous Panel a couple numbers that were wrong. It wasnt the case it was after 2013, blah blah, thats not correct. Turkeys economy grows very very fast on some grounds from 2002 to 2007. That was real growth, real productivity growth backed by structural reform. Mack coeconomics and financial macroeconomics Financial Stability after the financial crisis. That combined with a very important anchor, member anchor he was talking today. You can bring to it 2010 if you want but 20072010 period is special because that starts the Global Financial crisis period. And 20092010 was the crisis. You can say 20072010 thats it. After that turkey did not have real institutional reform and real outreach growth. You have unemployment going down, economy is growing and gdp per capita is growing and that is not happening. Coming back to the puzzle, this that, since 120. First part is the Global Financial kris si. We started seeing groet rate as low as two. Which doesnt go with turkey. Look how much india is growing look how much china is growing. That if youre a transition grow you have to grow 6, 7, 8 a year. We are seeing Something Like 2. 5 and we saw 5, 5. Something. To this is the statistic kal institute of in turkey that calculates the gtp numbers. Or bureau of labor statistics in United States. They change. They change the methodology. Instead of applying the that is standard, they decided to do two new things. There are a will the of details. In a nutshell. One they change the way they account investment growth. That will give you a pump up. Because we know construction sector goes. Two more important than that. This only gives you only part coming from investment not over all out put. The second change is important. They changed the. Data that under lies gdp member from production survey. You want to measure how much producing in the economy how much consume in the economy. This is a loop. And the loop that doesnt close down it comes from the outside. You consume goods from outside and sell goods to outside. Meaning other countries. This goes down to production. How much produce and all that. They changed that. The data comes from finance ministry and tax return. So this is a fundamental change. Other countries did this. This led to a change to gtp to 40 . Greece and china. And once we realize that, greece was too late. They with in a crisis. All the numbers were take. China the serious slow down was actually turn out to be a slow down after the region. Okay. Wow. Absorbing that will take a while for us. Let me turn to to you, and the person who sold through the original Customs Union in the parliament as the speaker of the parliament. I recall the days very well. Those who told that we were just going to be markets and eu was going to be a partner and again fit from the turkish market. When we look at academic literature today. As well as Business People. There is a recognition the Customs Union did give an important helping hand. To make turkey the kind of attractive dynamic economy it was. Around the time that made reference to. My question is a bit of a political economy question. To do again with squaring the circle. When i look at these figures, to do with the Customs Union, it is really turkish exports are growing significantly to the European Union. And while turkish exports the made a quick calculation back of a notebook, turkish exports to the United States in the first ninths of the month. Amount to twice turkeys exports to russia and iran. Structurally what this tells me, is that in terms of export which is critical to the economy. Turkey has no br else to go but the European Union. The Government Policies dont add up. How do we square this circle here and what does the picture look like from where you are . The European Parliament. Are you going to give the government a helping happened to upgrade the union . Thank you very much first of all for having me here. To the institute foundation. And so being proud sitting nebs to someone who has family background. I assume you talk about Customs Union agreement when came into place in 95. Which is the First Agreement of that state to the European Union as well. Towards third country situation. But also having this special situation of turkey who was in the process of applying which a at that time i think also nurtured a lot of positive results. Positive business and further understanding why to move forward and actually as we have heard today that has been taken up by himself. Because business was running very well throughout the last year or so. So where do we stand . The European Union has different sides we talk about Member States that have interest. We talk on the European Commission and the european participate limit to make it complex. But important. We have talked in the issue as many corner stones which are difficult. In our relationship as such. Let me tell you that i have been in turkey myself being at the week where the unity was taken by the parliament. And doing a press conference of colleague of mine from the netherlands from the liberals. Calling the country moves in sliding in towards from my perspective from east germany. And seeing the signs of tu turkey. Through their scientific people may have met from the community which dropped out of the media have been covered. And taken out of place. The political background is actually very difficult situation now for us in the European Union. The parliament at that time the question was not under Customs Union question but for example a liberalization. We made clear that they have not fulfilled the requirements theres no going to be. Now turkey moved in slipped towards the direction where we are now we have actually in facing a critical situation, where i think in terms of other relationships the European Union has. The business component its a crucial component. Thats the biggest in terms of being playing the rule in the situation the development of turkey itself. As yaw mention turkey is relying on the European Union. The exports to the is almost up to 45 . Also the imports are the biggest on 38 . So they actually see how big of both sides. Turkey is very important situation. And they the custom unit a lot in terms of where do we act on that. The parliament made clear that can read you some of the passages we have agreed on in the parliament in july. This year. I quote, believes that strength j the trade relations could bring concrete benefits to the citizens in turkey. And therefore in the light of the current failings of the unions support a Commission Proposal to start negotiations in the upgrading of the Customs Union. Reiterates that the turkish main trading partner and twothirds of Foreign Direct Investments come from the Member States. Under lines for the more the economic importance of turkey as a growth market. Considers involvement of social partners and negotiations as crucial. To include a cross of human rights and fundamental freedom in the upgraded Customs Union between the turkey making human rights and freedom a key. Recourse the Customs Union can achieve its full potential when turkey implements its Additional Protocol to all Member States notes Commission Conclusion that further trade integration would be stimulating by turkish eliminating the functioning of the custom units. There we go. Its important rare and how the human rights clause is fundamental freedoms clause is falling into the situation has been pointed out by in the beginning of our session. We are in a very difficult state. The german members of the media being imprisoned in turkey. I have been there and calling for the relief in the summer. When we had the trials in july. Also our members and who is here this morning is not allowed as a normal situation to visit our soldiers. In their native state turkey. So the political frame work is so difficult that im going to look forward on the discussion how that could be imbedded and has to be imbedded to work on the custom unit. We are in a difficult state. Making this square a circle it might stay a square. You have to make a circle some other areas so we will discuss that. Thank you. Were come back and maybe also discuss some of the imperfections that the parliament paragraph quoted us makes reference to. In the Previous Panel, towards the end i was pointing out how the alliance between the hallowed turkeys institutions. One of the institutions that appears to be hallowing day by day is private property and also guarantees for the investment that Business People are making. The turkish economy structurally were well aware depends on Foreign Direct Investment. Not able to come up with a savings that is necessary to drive the growth that is turkey needs. Made reference to it. So whats happening there . How would you could you elaborate on the way in which those two institutions are being weakened in turkey . Private property as well as the guarantees of investment. Actually only yesterday the president made a point that there are some trait traders in turkey. Scrambling the funds out of the country. This morning he tried to correct it saying that business turkey remains open to business in terms of Foreign Investment. Could you open this up and help us to better understand what is going on out there. Thank you for that easy question. And ill try to blame it on your wife. I guess one way to approach the question is to point out how the political situation cannot be disentangled from the economy situation. When you have an absence of rule of law, which seems to be increasing the case. In turkey right now. And emergency law. Combined with a political culture where you toent have an independent Business Community. This is a deeply rooted problem in turkey. Normally for a capitalist liberal market economy to function you need to have secure private Property Rights. Thats what we know from theory. If you dont have secure Property Private rights. If theres arbitrary government intervention, then you have a basic deficiency a structural deficiency for the healthy functions of capitalism. We can talk for hours about how. Akp nkdsingly is becoming arbitrary. And imposing its own set of laws. But there is a different problem in turkey that i think secure Property Rights have always been a problem for our country. From the get go, turkish industrialization. The Business Community. The turkish so to speak. Required the appropriation of the wealth and real estate of nonmuslim minorties in. Turkey had a business commune. Had some level of capitalism. In the 19th century. It was primarily the nonmuslim community. Jews and greelk greeks. Nation billion as we know is a product of the no more greek communities left. Its a product of ar men yan massacre ask genocide. And the Jewish Community has shrank. We know from the 1940s that private Property Rights from the wealth tax from appropriation have always been a problem. When ever there was a conflict with scyprus. The creek grunt would be on the receives end of the policy. The government has a tendency to interfere and the whole industrialization of turkey the creation of the turk irk Business Community was a primarily state led affair. Where capitalism markets private sector didnt have clear cut atonmy or independence. In poor substitution was the way turkey wpted to establish a model in the 1960s. With know this led to a asian miracle a situation where patronage and major loss making Public Sector enterprises emerged. So there was a level of corruption. Stmic always built in this the system. It took really short periods of maybe some growth with higher productivity. 20020 to 2007. One can thing the early reforms when there was privatization. There was some productivity gains. Over all the system failure of turkey. The transparency. The equality has always been lacking. We can blame the akp today for protoappropriating the wealth o. People say about the 10 to 15 billion worth of companies have been appropriated. But thats not a new story. The turkish state has been doing that against enemies that it considers for a long time. So this is not a question of political culture this is a question of the independence of Business Community. The endependence of basically all the companies that to a certain degree owe their wealth, their existence, their profitability to public procurement to contracts to the government. Business with the government. We can explain many things in turkey. Including free media. On the fact that the largest Media Company of turkey is always very active in the energy sector. If you want to get government contracts, good luck being an independent newspaper in turkey. So theres a kroen yichl. A net work that in my opinion really poisoned the quality of turkish economy. And liberal market reform and the quality of turkish democracy. Thanks. Its id like to come back to you. Against the picture that he just drawn. And against the challenges around the growth rate in turkey. That you just shared with us. The technical aspects. How do yo you see the economy moving forward . How is the turkish economy going to keep up with the globalization but also much more importantly and there allow me to make the link between his point about how critical guarantees for private property is if an economy is going to be if aeconomy will be able to move forward. Im not an economist. I keep reading pieces about how were moving towards digitalized economy. And how in that sense advance the ability for an economy to produce hightechnology products and be able to exploit them. How is going to turkey how will turkey be able to deal with these issues . And to link it to the Previous Panel how do you see this impacting the upcoming election in 2019 . Okay. Too many questions. But short answer. Its not possible. Something has to give. Things has so change. Let me add to the assessment and ill tie back. So he said first of all i agree with everything he said. Its important Property Rights and institutional not having institutional decay. That period he mentioned the post important thing for investment peeshl is the protection of Property Rights. This is actually not only a result this is a result which is shown by research. In 2008 tied to the why capitol doesnt flow from rich to poor countries. Using data over 100 countries and 60 years that the most important determined Foreign Investment in so a country at a given point or any type is the Property Rights. Protection of the property right. Why on earth should foreigners come to kaunt if he thinks his stuff is going to be stolen. This is the most important. Exactly because what professor just said. Turkey is a fast growing e mergeing market. These country need to import. To be able to sustain the growth. This is true for all these types of emerging countries. Because these countries are not technology leaders. Tech nol leaders are United States, and certain countries in europe. Like germany. You have to import technology and skills from the countries. You can do your own research and for sure. Im not saying that cannot be done. That has to be kept supportive and feeding from the Important Technology that youre going to bring fl in your country. Thats Foreign Investment. Dont think Foreign Investment toyota builds a factory in your country. Skill and Technology Comes with that. We focus on the export numbers. Thats what the government wants us to focus on. A very wide misconception. That number doesnt mean anything if you dont look at import. Experts minus import what matters. Known as the external deficit. Now some of it is good because if you have a deficit that means your imports are more than export. That can be a good thing if the imports are bringing technology and raw material. Skills into the country. That you channel to productive investment and upgrade technology. Thats a good thing. If those imports are going to consumption growth to building thats not good. Its not only that we have to look at exports and imports we have to look at content of import. If the eye is the very important part of that import because the other side of exports is the financial side. And the big item on the financial side that is good for the country that will help is fdi. Foreign direct investment. Not the debt the bank is coming. Not the stock market. Turkey doesnt have a big stock market. If the eye coming into the country will be important. And thats ties back so thats what we need to Going Forward keep this space in the globalized world. And that ties back to the European Union angle. So in the whole past 60 years of turkey. Even further. The period if the increase tremendously is those initial years of the becoming formal. 2004. It was amazing increase in fdi. That institution that lack of institution that he mentioned. This was always a problem. Not just today. That was certainly under the umbrella. Because what is the expectation of the market. Now this country is now going adopt the laws, rules, regulations. Because they have to har monoize everything to eu standard. And eu is a place we trust in this. There are laws, rules and regulations. That was an amazing anchor. Credible policy. That did a lot too. Becoming the formal member o European Union did a loft good. Very good. Sometimes you have to realize that some of us do not have quick enough chips to process the information you share with us. So please slow down. Of course. A bit. And the next question ill ask before we go to the audience in the nebs round is looking forward. How long is this economy going to be able, capable of limping along, six months, two months . When we look back at our history we do have a long history of crisis. Next round. Okay. One thing that has always fascinated me about the first Customs Union was the way in which the European Parliament came onto the scene. And said we will only ratify this if certain measures are introduced in with respect to improving human rights in turkey. I remember the day vividly and i consider that date as a turning point. Thats the point at which i think the European Union began to engage turkey positively in that political sense of the word. But also economy. Now my question here is is the European Union still able to do that . Would the European Union be able to put the kind of carat it was capable of put lg in front of not just turkey but the Center European countries. Can we still expect the European Union to play that kind of role if yes, why if no why. If you could share with us. And depends on your response well start to feel whether we can have some hope for the future or not. Not putting enough pressure on me. To speak slow enough. Im coming from a region in german where you speak slow. If you speak at all. The better it will be. So let me come back on that. Because as you said its crucial turning point the European Parliament has taken up. On this history i would like to elaborate. In the United States we are a huge debate in the European Parliament on the trade agreement for the United States. With canada. Canada was called for the u. S. And we have actually took a stand and there have been proceedings was in trade negotiation. Has never been tabled so far in the mandate. So we were always guessing where we stand and achieved that as we have new trade agreement with autotri ya and new zealand. It has to be the cast and voted on in the parliament recently. Our members in the parliament to look at the papers and had to give up the cell phone and not document anything. So so actually the parliament progressed in its rights. And its bringing up normality and standards. And to tell you a story, i have just returned from the philippines. We called a special trade arrangement to the philippines becoming a new democracy and actually like turkey building up capacity. A special trade instrument where the country is moves, speeding up and having less taxes to pay. This is linked to the human rights question. I made clear as a member of the European Parliament that this is now under evaluation. We are not looking towards actually to continue trading like that as member of the parliament. That is going to be challenged by next year. This is an important factor to stop the special trading. Which became positive development as we know the base trading partner to the philippines. The commission is resilient. But the forward human rights to us. And therefore i will say as a member im staying for that. This is because of the putting up a what philippines. He called in the european ambassador saying leave the country in the next 24 hours because i put the point on the trading instrument of the union. Foreign office called me. And i was just telling them what i said and actually what is in the contract. So we have to be very keen particularly. This are many situations i foresee being pressure inside turkey. For example the situation the state of emergency being called by lots of business groups from turkey. To take it off. Because its harming the situation as well. Also if you look at the tax rise because the government somehow has to dpet more money into the system. So we might look at facing that in turkey as well. Besides the inflation on 11. 9 . Its draining our turkish Business Investments investing outside turkey in order to make their money on a safe haven somehow. Thst pressure inside the Business Community and informsments itself. But towards European Union, i think you have to be very clear because the talks frozen. And im not sure how far we get in the custom unions if theres no movement on the turkish side as we have learned. Has to move up because he needs a Good Business situation. And a good economy situation. To he has to move in terms of the political situation in order to fulfill requirements. The question is whether we raise the human rights question. We have heard how many people are in prison. The media this is one of the points we call as well. And also the human rights situation. Even towards european citizens inside turkey. So there needs to be improvement by the government actually to come close to fulfill requirements. Never the less i under lie the private Property Rights you mentioned are crucial. Also we dont have trade dispute america mechanism situation. Its been called by the businesses. Trading goods of the European Union. Coming into turkish markets we have difficulty for example if you trade shoes and textile you have to again and again have the certification that this is a safe situation. Also if you look at the situation on medicine and the whole field has to again testify that they are right and they actually turkish opportunities to visit the kpan companies if they fill the obligations to be Good Companies and theres a situation which have to be taken up as well. So the mountains are getting smaller. The government has. The list is a long one. Because just as there are grievances on the side of the European Union with respect to the functioning of the old cut toms union. Theres a long one on the turkish side as well. However i take your point that the it is the more political ones and the human rights related issues that are going to tie down the prospects of initiating the beginning of the negotiations to upgrade the Customs Union. But just as i did with, i want to give you a sneak preview of the next question. Coming. You made reference as you read that quote from the European Parliament i noticed reference to the Additional Protocol. And the Additional Protocol the term is usually a covered word for cyprus. And the need to resolve the issue of cyprus. Next round id like to give a few if you could share with us a if u ideas about you see the prospect of it given the efforts that have been done. To resolve the issue and should reunification of the island. The question i have the nebs question is if we do get the upgrading of the negotiations to upgrade Customs Union going, is there a risk that cyprus may again too down turkey . To come back to the rule of law. Its amazing the way in which that prakically any issue that we have in the context of the turkish economy comes back down to the matter of rule of law. One thing that fascinated me over the last summer was in july, the way in which suddenly a list of 700 German Companies appeared as supporting terrorism. However, that list did not live more than a couple of hours life span. Very quickly there was intervention from the side of the government. And the withdrawal of the list from the public view. What can we make of this . Is this a sign that there is a recognition of the importance of rule of law the importance of protecting private property . What might have driven this . And what might have also motivated that Southern Response . Is there any hope we may see more of this becoming part of it policy and beginning to repair the damage that has done to respecting private property and the rule of law. Actually you mention a very good example of understanding the dilemma. Winning formula the reason why hes able to still win elections in turkey is based on two strategies. The first one is to mobilize populous nationalism. And argue that the country is basically under attack. And this nationalist narrative was part of the list to portray foreign kaptal and foreigners who dont want this turkey acting against turkish interest. The second part of the winning formula is to be able to provide services. Social economic services. To the core public support that he has. Mainly lower and middle income community. For this, the economy needs to have a certain level of growth rate. There has to be a certain level of economic viability to his policy. And when you endanger what your nationalists populous narrative any hope of the turkey getting not Foreign Direct Investment but short term portfolio fvsment on the grounds that this is no longer a country where theres rule of law. You endanger your economy policy. If we really want to understand why hes winning. We have to focus more than populous nationalism which is a good thing to have when things go badly. Into the real bread and butter issue the economy. Its very hard for us in my opinion to understand the reason why the akp has able to win election after election. Without the ability of public spanding and ability to provide these services especially the healthcare services. And subsidized healthcare and subsidized housing. So theres a situation where the turkish economy is dependent on this construction sector for employment. The turkish economy is dependent on public spanning. And able to do that thanks to the Structural Reforms that were implemented that reform the banking system. In 2001. But also the falkt that turkey from 2002 until relatively recently a few years ago had some level of fiscal discipline and the inflation was under control. Compared this with the 1990s. Which people in turkey are used to. You have structural inflation. To the tune of 60 to 70 . Chronic political instability. Corruption. And a war with the curds. Military intervention that destabilized the system. Crisis with europe. He achieved political stability. And low inflation. Was a public expanding port knoll folio where that servicing the accumulated debt was increaseingly paid. And he more room for public spanding was invested in megaprojects. But more important part of it was at the municipal level. And used for subsidized food, education, so basically you had a level of depend si in the urban lower class. Middle income sections of society. On this kind of so he had to maintain that kind of client net work. People are dependent on this. So people vote for hip in my upon not because theyre in love with his populous nationalist or sometimes islamic narrative. They vote for bread and butter issues. Basically a situation where they can have economic stability. Some spanning opportunity. And the hope of upward mobility. Now is there a limit to what he can do . Theres a clear limit in the absence of real structural institutional reform. And turkey has reached a plateau. Where it is showing all symptoms of a middle income trap country. Its not able to invest really in good quality education. Theres no innovation. Not enough research and development. The state is too much involved in all the affairs. Theres no rule of law. So there a limits to how much he can continue on this winning formula. The worst economy will get and were approaching a moment of in my opinion a sooner or later reckoning in terms of whether he can continue to span at this level. Without reaching higher inflation and jeopardizing the fiscal discipline. Then he will double down. Were seeing the symptoms of that. I would caution for those who hope the economic crisis will bring the end. Despite all the structural problems of the turkish economy on the main issue of Public Sector deficit to gtp. Turkey is around 30 . The public deficit to gpd ratio is 30 below the criteria. The criteria is 60 . Turkey has 30 . It has room to engage in fiscal stimulus and spending. Without jeopardizing the Public Sector borrowing that much. The problem isnt prift sector. The private sector accumulation of debt and especially short term debt. Thats why the alarm bells are more on the private sector. But dont discount the ability to continue this public spanding project and use mechanism like the Credit Guarantee to private sector. As much as he can. To cover for some of the deficiencies of the plooift sector. He has luxury thood. Because of the reform implemented in 2001. The Banking Sector is still despite the looming penalties that are coming because of the case. I think has over all the strong fundamental the banking sur voifed this penalty. And to continue the system of clientism and public spanning. Check with you. Whether what he has just said is really plausible. In the coming two, three years. On the one hand said the moment of reckoning is coming. The Banking Sector and the fiscal discipline still allows him room to keep buying the loyalty of. How do you flekt on that . And well turn to questions and answers. Once we finish the round. Okay. I want to you can let me start by saying im an economist. I think every occupation should know the strength and weaknesses of what they can do and cannot do. As economist we are very good at analyzing. Providing numbers. Providing solutions. The really suck at really bad at predicting things. So we can thot predict crisis. We saw this in United States in europe. In many markets. So i dont know really when that reckoning moment will come. I agree with him. We shouldnt be in the business of predicting economic crisis or hope that thst an economy crisis in turkey. And that will be the end. We dont know these things. It maybe it may not be. It is not about that. Its about lets look at the Current Situation in detail. And lets analyze can we go on with this current. Let me pick at a couple things. It is true that turkish government has a lot of fiscal room. The public that gdp 30 . Lower than 40 . Much lower than advance countries like u. S. And italy. Greece. But we also know that these numbers with go very quickly over 100 in moments of crisis. Once youre in a confidence crisis you can go from 40 that 120. In days. It has happened to japan and italy. Spreads will shoot up. Youll be like desperate to try to find funds. This brings me to the very important point that you cannot analyze turkish economy independent from Global Economy. Turkey is a small open economy. Okay. Turkey is not china. It doesnt have those huge savings and reserves as chi china has. Turkey has an externt deficit. They have to borrow every day from Financial Markets to get the economy going. On the longer term basis it has to borrow to get the technical imports to fdi and the good things we talk about. Just as a fact of manner. Turkey is dependent on the global market. Has to borrow to keep running the economy. Now, this means the door opens in the Global Economy is important. On the good side and bad side. Let me say little bit on the good side. Theres a strong Banking Sector in the economy. And government has room. Loefls of fiscal discipline. Akp government has nothing to do with this. This is 2002 reform after the financial crisis complete inf program. Very standard applied many mernling countries with this crisis. The cry ss of 2002 was a triple crisis with Banking Sector, government and Exchange Rate crisis. A typical solution to that crisis. I just told you. As economists we are good at providing solution after things happen. Typical recipe to the crisis happened in south korea and argentina. Have typical growth after such a program. You rain the inflation. Bring fiscal discipline. Which brings Financial Stability. But on the economy they didnt mess up the program. This is a very standard program. Which brought low inflation and fiscal discipline. Moving forward of course this gives you a Strong Financial sector. A lot of fiscal room on the government side. That many European Countries lack. Many European Countries fell. All good so far. But the problem again comes back to the fact that turkey is a small open economy and keeps borrowing. Why things kept so long going on is because that Strong Financial sector that strong Banking Sector kept borrowing over seas. Because dollars is cheap. Cheap dollar these things happened in u. S. And europe if you look at the Global Financial market, borrowing dollars is cheap. Turkish Banking Sector has 50 external liability. And they are fine. They are a strong banking center. Liability side and asset side match. They borrow and pay back. What about the private sector . What about the private sector that is not in the tradeable sector. Meaning they dont have dollar income. Construction sector. Right . These sectors borrow heavily in dollars. Right now the turkish private sector is tlar dollar debt is around 50 of the total debt. They dont have the type of income or revenue. What happens. Those borrowing costs on the paj Banking Sector tries to borrow over seas. Oil prices start increasing. Okay. These two things are important for any small emerging market. Especially market like turkey. That has deficit, still has to borrow 40 ps of gtd every day. Once as a country and currently government is not borrowing. When the cost of borrowing start increasing what is going to happen . Defaults will start roll right now. You keep rolling over. Banking sector rolls over. Theres going to be some point. Whos going to interact the point the final stop . Whos the fiscal backstop the government. I fully agree. They have the room. That can maybe just last a week. Right. We saw these things. Italy government. What about portugal and spain. Some of the governments didnt have the problem. Look at what happened to the spreads over night. Spreads meaning the cost of funds for the government to borrow. They skyrocket. What is turk ir government going to do . They know this well too. Thats exactly because of that. Because if youre borrowing increase even you have the fiscal space, thats not mattering theres a confidence crisis about your country. You borrow. The problem here is the only country that doesnt have the Natural Resource and doesnt have savings like china. Is turkey. Normally countries either they have Natural Resource or savings. Reserve. All these saying that again going back to my key point. These ingredients are not right. Theres something wrong in the picture. I cannot predict what will happen. Maybe there wont be an economic crisis. This is not whats important. As turkish people i want what is good for the country. Long term sustainable growth. Thats not achievable with the current ingredients. Thanks. If the law gives me a chance ill study economy. To go back to you, we sort of changing subjects here a bit. Listening to her and listening to i cant help but see this huge black cloud accumulating in the horizon and turkey is a critical country for the European Union. Not just for reasons to do with strategy. Also economy. And also something that European Union feels a lot migration. So how does the European Union handle turkey . With respect to this upgrading of the Customs Union. When that quotation makes reference to the implementation of the Additional Protocol. Which to me means resolving the cyprus problem. And it doesnt look like the cyprus problem is about to resolve. And dare i say, you need to give some credit to the government. That they made an effort to resolve it. Very briefly because were beginning to run out of time. If you allow me the situation of the german business. I have been in turkey when the list has been brought out showing businesses accused to support terrorism. The strong opinion we got from berlin and taking by hours and have been at the consulate at the time. Showing how important it is to bring issues on the table. And that list has been done like central showing in which the turker government is playing two side situations. And also just i want to under line because we are taking very much into account that over 965 companies have been accused supporting the movement. And we talk about over 10 billion being in the funds of the government. Whos running it . Whos controlling the companies . That is a very important factor. Now being accused as a German Company to because you have trading relations with some companies and be accused through that to be taken part of the system of the movement. So they see the whole net the turkish government has to be so careful in not destroying partners and investors. Therefore i can just under line what you have set importance of bringing the questions to the table. In terms of the cyprus situation. Things have changed a lot. So close to the talks on both sides. And we dont want to the interlink the situation too much on the cyprus question. In terms of protocol. The protocol which has been taken or actually the arrangement which has been taken by the Member States looking at the migration situation. Is not being supported by the European Parliament. They see the European Union as the different columns. Never the less, we under line in our report in july of this year that turkey has taken one of the most important support of refugees having over 3 million in the country from neighbor countries to afghanistan. That they play a major role in stabilizing the process. The few refugees which came over to the europe of 5 Million People. Brought us already in to a political crisis state forward. And therefore i think its very important not to interlink or business situations with the refugee question. Because europe is big and strong. Even difficulty on this political refugee question. I identity crisis merge in popularism. And the situation to a strong extent. But we have to make clear that we are not getting and playing spoo the cards has been many times that us being in turkey and asked by the media there. Its interesting when i made reference to migration. I didnt have the refugees in mind. Public Opinion Survey in turkey for sometime showing that the syria refugees do not aspire to move on. What i was more concerned of if those clouds in the horizon really lead to a melt down in the turkish economy. What will happen to some of the individuals that will feel that they need to move onto greener grasses . And the other day a colleague of ours shared his public Opinion Survey results. Even though there is this much foul language narrative being used against the European Union, in turkey. When the turkish Public Opinion is asked if you intend to go where we would be be going, none are saying iran, russia or saudi arabia. Its the European Union. Im concerned on the its not only helping other economies and scientific background. We have a big scholarships in germany for foreign academics and actually tremendously how many most qualified people applying for the scholarships actually achieving a lot of them. But from the long run as you mention the factor. Also scientific, education. We need the people in turkey. Im really calling as well on that topic. As has been heartbreaking seeing how much have been had to leave the country or taken out of the their work just because the. That is on the long run also very important factor for the turkish economy. Thanks. In were going to turn to the floor. So if there are any questions as you come up to the microphone. This is the instruction i have. I will turn around and ask my final question to the and ask him to weave it into your responses to the questions coming from the floor. In the Previous Panel towards the end there was a discussion of public Opinion Survey results. I understand from those survey results Economic Issues are beginning to make it back into the top of the list there. Terrorism is beginning to slip back down. We also hear a lot how kopt continues to be keen in running public Opinion Surveys and trying to respond to them. As you respond to the questions from the floor, would you also please consider whether that kind of input may be an input that might encourage rkp and maybe the leader as well to move way from the kind of politics that in the economy is seems to be leading turkey into crisis. Yes, sir . Thank you. Your name and brief question. My name im a i was born in india. I have two questions. One is, turkey is it really an economic or human rights issue . Or an identity issue that you refer to. Even the refugee problem is an identity issue. And it is clear tremendous in europe. Turkey if it were a member of the European Union in the couple of years the largest eu country by population. Its already there. Do you western europe rope will want the largest Muslim Country, will the government berlin or paris stay in power after admitting turkey . I assert this issue in western europe in turkey. I saw it has nothing to do with economic issue. When you talk about human rights, whats the human rights attrition in hungary. He is called a dictator. So suppose do you think realistically turkey becoming eu member, even if it resolves the human rights situation . Second question, if that does not happen, what kind of relationship do you expect between turkey. Yes. You or European Union, like Customs Union or whatever it is . Most europe ions and turks have given up on yes, thanks. European union. Very good question. Yes, sir. Two questions, one is purely economic, the other one is noneconomic. First professor, she mentioned there was real growth between 2002 and 2007 in turkey. I wonder if that kind of growth was really based on the real economy or just the financial just improvement on the financial side. And one aspect of that that wasnt mentioned, hasnt been meng sod far is privatization. As any economist will tell you, privatization can be a positive thing when done in the right way, but can be a negative thing as well. So i wondered how much of a role did privatization play in providing those funds that were later spent used for public spending . My second question is to honor elites with regard to the European Unions approach to turkey. The professor mentioned the carrots, you know, providing carrots as well as sticks in the in motivating a down the change its behavior, demarketize,ettes. Do you think that ever since turkey was declared a formal country that the eu really provide the requisite carrots as well as sticks to turkey to move towards membership . And by that, you know, i in the runup to the latest german election, for example, i remember a quote, one of the German Green Party saying we discover turkey or the government of Angela Merkel discovered turkey all of the sudden when the migration crisis broke out. But before then were you know, they werent really very interested in turkey as, you know, moving forward. And all of a sudden turkey became a very important country in the eyes of the german government. Thank you. Yes. And then well turn to the panel and conclude. I have two questions. One is name, please. Im sorry . Your name, zblees i work for the Muslim Public Affairs council. Thank you. The first question is you mentioned several times that the European Union was very concerned about human rights and interested in human rights and yet im wondering how you respond to the accusation that some people make that in order for turkey to keep the Syrian Refugees that europe has decided to turn a blind eye towards turkeys human rights abuses. And the second question is what effect is the large syrian sort of immigrant refugee population having opt turkish economy . And i know you said economists arent good at projections but if you could give it a stab in terms of what the probable projections are in terms of the effect it will have on the economy. Thank you. Given that some of the questions were very European Union focused, can we start with you and especially the gentleman with the name mustafa, my old man was called mustafa, so. Thank you. Sure. What kind of a relationship in the future, especially, yes. We only allowed to speak for one minute in the European Parliament, so i can ill give you two, three minutes. Wow. Im more generous than the European Parliament. That opens up also good relations. I will take all of them kind of together because some of them have been asked from a different layer and perspective. I give you one story when i have been meeting the op man of human rights in turkey and he ask us, so, listen, we have been we went there with the committee of human rights. At that time we still met the government officials. So he said we tried so hard to become a member and to move, speddy up in the process to become a member of the European Union and we have not entered yet so we have been standing at the doorstep and have you not opened up too quick enough. So now we are going through the window and i ask him then afterwards, do you see that as a window of opportunity in terms of good relationships to interact with each other . So by saying that we have had started this process, the European Union and, yes, politically that goes also to the question of politician of the green party, we have different layers than the german political field for example. Mrs. Merkel has not been good friend of the idea and the conservatives of germany to have turkey as a member of the European Union and shes still saying that straightforwardly. The democrats question that. And, yes, even you recall to Muslim Country were we have these difficulties even refugees in the European Union all of them saying we are not welcoming any refugees of a different religion. We have actually the freedom of religion in the European Union as a basic value. So the question should we stay or not stay on our values. And i think that should and must not be the crucial question of the religious part. If turkey comes up in full filgt criteria, yes, because we in the process. But we are not there yet and so its not the situation to enter now through the window because it needs to be the door and the doorstep which needs to be passed. So that is a very important situation and in terms of taking a blind eye not blind eye, i underlined and make this again that the European Parliament on the refugee question has a difference with the commission together then the Member States do. The Member States dont want to share and take up and build up a new dublin system and actually have not even agreed fully and now we have this lawsuits also from hungary and other countries not taking refugees into their into their countries as we have to being on solidarity on that track. So we are in this political situation which is difficult, but in terms of human rights i call us a member to fulfill the human rights also with ef refugees in turkey and if this is not the case then they have to go somewhere else. And being able to enter the European Union as they are refugees of war, this is done by the geneva treaties. But we have difficulties now as you all know that fulfilling these standards across the European Union and therefore this other european struggles were having ourselves right now. I think three minutes are over. Yeah. Thank you. Thank you. Thanks. Can you do the Public Opinion and then also maybe the eu, the future of eu turkish relations. I know they tried hard to get an akp person here and we dont have an akp voice. So let me try to answer the question that you asked with an eye on how an akp person would answer that question about opinion polls. If akps often blamed or erdoan is blamed for tictorial te tendencies or becoming a dictator, someone representing the akp would say they are not in the opinion polls business, they dont look at opinion polls. They also dont tear much about the economy performance because they know they will win. They dont win elections by a very small margin, they usually win with sham elections with 80 , 90 . What im trying to say is that if we want to be charitable to the akp, we have to understand that despite all the totarian tendencies in the country, turkish democracy still has a pulse and its basically about elections, what we have left in turkey are elections. And it is absolutely critical for the west to send election money to turkey next time so that elections are not rigged. The fact that erdoan won with a very slim margin despite this draconian law created alarm bells after the referendum. The fact that he couldnt win with 55 , 66 december despite having all this prop gand behind him shows that hes worried about Public Opinion. Hes worried about the youth, hes worried about the urban areas, thats why i think he decided to change the mayors of all these big cities in turkey. And he has an eye on the economic situation. He needs to deliver. He cannot afford to burn the bridges with the European Union. Sooner or later once he has more Political Capital to spend, once hes more secure in his seat, again, im trying hard to be charitable to this vision, he may do a u turn on a number of issues. He may do a uturn on the eu. He may do a uturn on the kurdish question maybe. Its hard to see it now. But hes very pragmatic. I dont think hes an islamist in a pure sense. Hes more a pragmatic nationalist and an ideal log. Today conserve activity nationalism is playing well, hes playing that drum. But the reason why hes so much into opinion polls is because as a populist and he has to win elections. And i hope we will keep it that way, because if we lose the electoral ballot box in turkey we have nothing left. Thank you. You were very charitable. I hope it works out along the lines you suggested. There were a number of questions on the economic side, the privatization and the cost of city and refugees on the economy and then well close. Okay. So in terms of the question if this growth was real or financial, it was a real growth, i mean, at the end of the day, of course, they go together because you measure in monetary terms the value of help. But how we measure gdp growth is you look at how much the value of output grow from x point to q point and then we try to understand the components of that. So as of like 2002, with all the reforms and economy like that, when we look at that growth rate, how much Gross Domestic Product gdp grow and how much of it is this, this, and this, we look very real in especially this sense. That growth is going having three parts. One is just pure population growth, because population is also growing, if you reach thats the most real part. The second one is the fact growth, meaning the capital, capital human capital, so thats like how much, you know, Skilled Workforce grow, how much, you know, the actual capital grow, so that can be told something financial. And then the third part is this part that generally we call residual because we cannot measure that well but thats the kind of remained pert once you take population growth from that Gross Domestic Product growth and how much the financial side Capital Investment grow, then the remaining is about to be called kind of real productive grow. So its a measure of how much we became better at doing things, how, you know, more efficient we are. That part is general tied to research and development, innovation, technology, and all that. So that part also grow, right. And because that part we know that part is structural deforms for sure. You cannot, you know, be better at things, you cannot be better and all that without structure reform. So in that sense it was real. Now, linking it to privatization is very hard because privatizations going to be part of that investment growth, right, how much capital grow and of course thats in its essence something financial. But im sure there are studies that look at those numbers because, as you said, privatization can be good or bad depending on how the funds used. But, again, the important part is this other part, how better we are at doing things, producing things. So thats real. And the refugee question, this can also be Something Like privatization can go good or bad, right in the sense that you have 3 Million People added to your workforce, right . In a growing economy this is actually a very good thing. If youre an economy growing over 7 , 8 , this is part of all china, you look at the whole world economy, you have all these people willing to work, you can incorporate them into your growing economy thats a good thing. But if your economy is not growing that the fast rate that can find jobs and i corporate these people to the economy, then that can be a drag. I personally dont any projections on this myself, but there are several studies doing this and my sense from these studies is in the, you know, medium to long run, medium to long run being like five years and beyond, thats going to be a drag on the economy if the growth rate of the economy doesnt pick up. If it does, then of course it can be a good thing. But, you know, its going to be a negative on the economy. One tiny little detail to add on city and refugees and the point that she just made on population growth is that part of that population is actually engaged in the turkish economy formerly but mostly informally. And whats happening every year is that when you divide the gdp into the population, that population is not included into in the calculation. So their contribution to that economy gets divided up by only Turkish National nationals and helps the per capita income to look better. Thats one of the advantages that gets brought to the table there that gets overlooked sometimes. I know you wanted to make a remark, i think, as we close the panel. Thank you so much. In terms of 30 if im not mistaken, the inform secretary, so thats a giant sector as you look at the Business Economy in the country. I just wanted to underline what you said looking at the next polls as we still have these instruments. We still have a running leg as one of the news agencies. So we have to state what we have and we have to underline to wherever we go in turkey in talking in public there as well, we always underline to were standing on behalf of the citizen who are strongly believing in the rule of law and justice who are calling for free media and democracy and thats what we are underline as members of the European Parliament. This has been done because i come from east germany with americans and other ones who supporting us and telling they are supporting these people in the countries. I come from an opposition family so i know exactly why this is important to underline. And it was very thankful that you make this point. Thank you. Thanks. Id like to thank everyone for a great panel here and i cant see you there, but over there, i managed to finish this panel in time in return for that little publicity you made about my vote. Thank you. Go ahead, please. Thank you so much. Please join me in thanking our panelists and wonderful moderator. Well break for lunch for an hour. Well reconvene at 1 30 for the keynote address. Thank you. [ indistinct conversations ]. Cspans washington journal live every day with news and policy issues that impact you. Coming up tuesday morning, a discussion of the Supreme Court case on gay marriage and religious freedom with elizabeth of the Constitutional Accountability Center and a woman from the judicial crisis network. And know we will straub talks about president trumps decision to shrink the size of two national monuments. Be sure to watch cspans washington journal live at 7 00 a. M. Eastern tuesday morning. Join the discussion. Tuesday an allday forum on women and leadership. Politico joins google and the tori Birch Foundation as they hear from several people including white house officials, political business and education leaders on the role of women in the world. See it live starting at 8 40 a. M. Eastern here on cspan 3. Tuesday the House Rules Committee considers legislation to extend Government Operations through december 22, 2017 as well as legislation dealing with concealed carry laws. Watch live starting at 2 00 p. M. Eastern here on cspan 3. Now a look at the impact of social media on campaigns and elections and whether these technologies increased polarization in american politics. The university of Southern California in los angeles hosted this forum. Its about 50 minutes. Thanks a lot and thanks for following through with this convenient and i also want to thank i see several people from the Viterbi School from the audience i hope you enjoy it and continue to participate in the event. We have an exciting panel today i think we should get started with questions. Many of the questions were prepared in advance and so well start with some questions about the news in this current year. Its only been a year since the president ial election, but it seems very hard to remember a time when facebook wasnt synonymous with fake news. People who disseminated false information on social media range from those who are fblly motivated to Foreign Government propaganda agents. Whats your take on fake new