While momentum behind Turkey's bid to join the European Union (EU) is growing, there is still considerable scope for a disappointing outcome in December this year, says Fitch Ratings in a recent report.
The focus on Turkey's EU accession bid has intensified in recent weeks. Ahead of the May 1 EU enlargement, Ankara is pressing hard to reach a resolution of the Cyprus dispute, which is currently seen as a major obstacle to Turkey's own accession aspirations. A wide-ranging series of political reforms were passed during 2003, designed to address the so-called Copenhagen criteria, which must be met in order to secure an invitation for accession talks. More generally, international support for Turkey's EU bid appears to have strengthened over the past year.
Successful accession is likely to have a disciplining impact on government policy, and the benefits stemming from greater certainty and consensus over economic policy could potentially be very large. Foreign direct investment (FDI) would be likely to increase, perhaps substantially if the record of current accession candidates is anything to go by. Closer political integration with the EU would also carry material financial benefits, and Turkey could qualify for substantial pre-accession funding, and eventually for large EU structural and cohesion funds.
Market sentiment in Turkey could also be expected to strengthen, as investors gain greater faith in macroeconomic stabilization and reform. This would help bring down interest rates, and reduce their volatility. A sustained period of low interest rates would allow the authorities to reduce the volatility of the government debt burden and to refinance the large amounts of floating and FX-indexed paper with more stable fixed, TRL-denominated debt.
EU members will decide in December this year whether Turkey fully meets the Copenhagen criteria. Depending on this verdict, the EU will either set a date for accession negotiations to begin or press Ankara to undertake further steps towards meeting the political criteria needed to start talks. Current momentum on Cyprus, together with continued pledges of support from some key EU member states and a clear commitment to the accession process from Ankara, suggests that the chances are increasing that when EU heads of state meet in December of this year Turkey will be given a date to start accession talks, probably in 2005.
Notwithstanding recent developments, the extension of a clear invitation to start accession talks is not yet Fitch's base case scenario, and there is a strong possibility that Ankara will be pressed to undertake further political reforms before a fresh judgment is taken, one year further on at end-2005. A further year of delay would be disappointing, but not a deal-breaker in Fitch's view, as it is highly unlikely that the EU will totally shut the door on Turkey's accession bid.
EU accession is at the top of the Turkish government's political agenda, and in view of the potential benefits to the country, not to mention the boost to the standing of the ruling party, it is unlikely to give up so easily. One more year would allow the authorities to demonstrate clearer progress towards the political criteria and would give the EU much less scope to reject a future bid. — (menareport.com)
© 2004 Mena Report (www.menareport.com)
