ECB Fears Contagion from Turkish Lira Collapse, Bank Stocks Plunge

Turkish lira in free-fall, down 18% in two days.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

On Friday, the Turkish Lira plunged 15% against the US dollar. Over the past two days, it has plunged 18%. Over the past four months — shown in the chart below — it has plunged 38%:

Now even the ECB is beginning to fret about the potential impact the plummeting Turkish Lira may have on Eurozone banks that are heavily exposed to Turkey’s economy via large amounts in loans — much of it in euros — through banks they acquired in Turkey. Given the plunge in the lira, companies have trouble servicing their euro loans and are beginning to default. And loans in local currency are plunging in value along with the currency. This is how the currency crisis in Turkey, which is turning into a debt crisis, could set off contagion effects among banks in France, Spain and Italy — a risk we have been exposing for two years.

The ECB is concerned that Turkish borrowers might not be hedged against the lira’s weakness and begin to default on foreign currency loans, which account for a staggering 40% of the Turkish banking sector’s assets, the FT reported. Turkey leads all other major emerging markets on total foreign-currency-denominated debt (including public debt), which hit nearly 70% of GDP last year (up from 39% in 2009).

Banks in Spain, France and Italy have estimated exposure to Turkey’s banking sector of around €135 billion. Spanish lenders alone reportedly are owed just over €80 billion by Turkish borrowers in a mix of local and foreign currencies. French and Italian banks are respectively due just under €40 billion and €18 billion.

If those borrowers begin to default in large numbers, it probably won’t be enough to trigger a full-blown Eurozone credit crisis, according to the brokerage firm Berenberg. But it could cause major headaches for Eurozone banks “that have large credit exposure to Turkey or own Turkish banks.”

At the top of the risk list, as we’ve been warning since 2016, is Spain’s second largest lender, BBVA, whose stock on Friday plunged 5.4% on news that the ECB is concerned that the Spanish bank, along with France’s BNP Paribas and Italy’s Unicredit, could be particularly impacted by Turkey’s gathering currency crisis. According to the FT, the ECB has been following developments at the three lenders closely for the last two months.

The news sparked a rout in the three banks’ shares, with Unicredit ending the day 5.1% lower and BNP Paribas down 3.4%. Other large Eurozone banks were also affected, with Deutsche Bank’s shares falling 4.2% and the shares of ING, which is also exposed to Turkey, down 4.5%.

But it was BBVA that was hit hardest. The bank, whose shares are now at their lowest point since Oct. 2016, owns about half of Turkey’s third largest lender, Turkiye Garanti Bankasi, which provides roughly 15% of BBVA’s global revenues. But those revenues are shrinking as the value of the currency they’re denominated in, the Turkish Lira, collapses.

Year-to-date, Garanti’s shares are down over 40%. Today alone they shed 6.9% of their value. But for BBVA, it’s not just the diminishing value of Garanti’s stock that poses a problem; it’s the crumbling value of the currency in which the stock — and much of Garanti’s business — is denominated.

Over the last eight years BBVA has spent €6.9 billion to get its hands on 49.85% of Garanti. Since these purchases, starting in 2010, the Lira has collapsed all along the way. Garanti’s current market cap, converted into euros, is €3.7 billion. BBVA’s 49.85% stake in it is worth €1.85 billion. In other words, BBVA has lost 73% of its investment.

In similar fashion, Unicredit has seen its €2.5 billion investment in its 40.9% holding in Turkey’s Yapi Kredi shrink in value to €1.15 billion. According to analysts at Goldman Sachs, Yapi Kredi is “the weakest positioned of Turkey’s biggest banks in terms of capitalization,” despite the fact it increased its share capital as recently as May. As for BNP Paribas, the 8th largest bank in the world, it claims that its 72.5% holding of retail bank TEB is “very limited,” representing around 2% of overall group commitments. This is not the case with BBVA.

According to analysts at research group Anonymous, abandoning Turkey would cost BBVA 13% of its tangible book value in lost profits and write-downs. They said such a step would cost Dutch bank ING 9% of its tangible book value, Unicredit 8% and BNP Paribas 3%.

BBVA’s CEO, Carlos Torres Vila, recently said the bank had no intention of leaving Turkey despite the recent political and financial turmoil. The bank was apparently “really very, very well prepared for the situation,” having reduced the weight of its foreign currency portfolio and increased the weight of its inflation-linked instruments. What’s more, Turkey has “great economic potential due to its size and its young population,” Torres said. And the solution to its current problems “lies in the hands of the Government”

Therein lies a large part of the problem. Turkey’s strong-arm president Recep Tayyip Erdogan has no interest in implementing the sort of measures international investors are calling for, such as requesting an emergency bailout from the IMF, much as Argentina did in June, or dialing back his growing interference in monetary and economic policy decisions.

Erdogan has wielded that influence to deliver unending economic growth through unrestrained borrowing, lifting Turkey’s debt levels and current account deficit to dangerous levels. Reversing that now could plunge Turkey into a deep recession, if not depression, which would significantly erode Erdogan’s popularity.

Erdogan’s response to the Lira’s collapse today was to exhort the Turkish public to convert all of their money into Lira in what he described as “an economic war” being waged against Turkey. “Change the euros, the dollars and the gold that you are keeping beneath your pillows into lira at our banks. This is a domestic and national struggle,” Erdogan said, according to an Associated Press translation.

This call to action is unlikely to calm the nerves of jittery foreign investors, many of whom are already looking for exit doors as the prospect of capital controls looms ever larger. But for Eurozone banks who have invested billions in acquiring market share in Turkey’s fast growing financial sector, walking away will be less easy. By Don Quijones.

Too little, too late? Read…  Turkish Banks Scramble to Stave Off Debt Crisis, as Lira Plummets  
 

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  85 comments for “ECB Fears Contagion from Turkish Lira Collapse, Bank Stocks Plunge

  1. VarAway
    Aug 10, 2018 at 1:31 pm

    According to my information, the Turkish Lira lost 40% of
    its value against the € since early january 2018…..

    Geert Wilders was correct when he mentioned dictator Erdogan being a total freak.

    • Ppp
      Aug 11, 2018 at 10:55 am

      Countries are opting for autarky as a way of trying to get ahead of the credit crunch. Turkey is an indication of how severe a credit crunch it will be. Why shouldn’t Turkey simply cancel all the foreign indebtedness it wants to, both public and private. Let central banks make up for it. Haven’t central banks been doing that all along. And Turkey should pull out of NATO, which it will certainly do.

  2. Dave Mac
    Aug 10, 2018 at 1:39 pm

    How many more dominos have to fall before we get another global crisis?

    • van_down_by_river
      Aug 10, 2018 at 3:53 pm

      This domino sounds net positive for the U.S. market.

      A Turkish crisis is just what Draghi needs to flood the world with ever more freshly manufactured Euros.

      Push the pedal to the metal you crazy Italian, let’s see how fast this machine can go! (and trust him, his money machine can go fast enough).

      I think you can count on a lot of Draghi’s freshly created crisis money ending up in U.S. large cap stocks – good news everyone!

      Of course Powell will need to maintain loose monetary policy to keep the currency markets in equilibrium (assured mutual currency debasement).

      • Javert Chip
        Aug 10, 2018 at 8:50 pm

        135B euros owed to Italian/Spanish banks is certainly not a happy event, but it’s not (quite) the end of the world. Don’t know how this stacks up with target-bank capitalization, but could be a sizable hit if focused on a small handful of banks…could be more mergers in bank’s future.

        Italians probably spend more than that on cafe lattes in a week…

        Erdogan appears to be doing everything possible to make this more painful for Turkey. Elections (even impure ones) do matter and the Turkish electorate pretty much knew what they were getting With Erdogan & tooth-fairy economics.

    • Unamused
      Aug 10, 2018 at 6:17 pm

      One.

  3. JoAnn Leichliter
    Aug 10, 2018 at 1:43 pm

    My bank locally–Bank of the West–apparently has a relationship of some sort with Paribas. Makes me wonder whether I should be concerned (although all I have is checking)…

    • JoAnn Leichliter
      Aug 10, 2018 at 1:51 pm

      It turns out that Bank of the West is a wholly owned subsidiary of BNP Paribas. Well, well.

      • Mean Chicken
        Aug 10, 2018 at 3:04 pm

        If your account is covered by FDIC then you’re safe even if the $US goes to the moon.

        • Ambrose Bierce
          Aug 11, 2018 at 10:52 am

          So you’re saying that the FDIC is going to pay on an account drawn on a French bank with contagion risks associated with Turkey? Very interesting

    • Wesley Fry
      Aug 12, 2018 at 2:00 pm

      JoAnn, keen observation. BOTW has BNP Paribas exposure.

  4. nick kelly
    Aug 10, 2018 at 1:44 pm

    “Paul Greer of the fund management company Fidelity said raising interest rates by 1,000 basis points would be a “good start”

    Jesus. But that’s what Russia did a while back and it stabilized things.

    • Aug 10, 2018 at 1:58 pm

      nick kelly,

      To stop the collapse of a currency and runaway inflation, you need to do radical and painful things. By that time, the free lunch is over, and the check is now suddenly on the table. Russia figured this out and did it — and swiftly before the damage had gotten too large. That’s the smart way to handle this. Turkey is heading in the opposite direction.

      • Jerry
        Aug 10, 2018 at 2:22 pm

        Wolf your words are so true.
        I lived in New Zealand in the 80’s when interest rates hit twenty two % and that is very painful for the other side of the trade. Luckily I was a saver at the time.

        Q only announced yesterday that the preview was over and it is time to enjoy the show. We have had the intermission.

        Now it is time for pain economically and politically.

      • Gershon
        Aug 11, 2018 at 8:06 am

        To stop the collapse of a currency and runaway inflation, you need to do radical and painful things.

        Like jailing the Keynesian fraudsters at the Fed and central banks, shutting them down, and putting monetary policy under someone more accountable to the public interest than the “former” Goldman Sachs officials controlling our money issuance for the exclusive benefit of their financial sector accomplices.

        • Steve Graves
          Aug 11, 2018 at 11:37 am

          And who is more “more accountable to the public interest”? Our elected representatives? As self-serving as the financial elite may be, shutting down our central banks as you suggest would be disastrous. With all due respect, handing monetary policy over to politicians would be the most idiotic thing we could possibly do. Trump (for example) would do anything and everything to prop up our debt-fueled growth, including slashing interest rates to zero in order to sustain (unsustainable) four percent growth. Basing our monetary decisions on political ambitions really would be the beginning of the end.

          Not saying our system is even close to perfect, Gershon, only that it could easily get a whole heck of a lot worse.

          PS: People haven’t fought and died to preserve our liberty so we can jail folks who embrace economic theories we disagree with.

  5. cdr
    Aug 10, 2018 at 1:57 pm

    Turkey is in an odd place. Economically they have problems. But, did they do it to themselves or is this the result of being geographically in the wrong place while trying to not be a client of others with an agenda in the same geographic area?

    I’m not smart enough to know.

    However, if the later is true, then the EU/ECB won’t let it go too far. As they say, it’s my problem to owe $1000 to the bank, it’s the banks’s problem if I owe them $1billion or more. If the latter is true, then, if I were Turkey, I’d double down in some way and stick the ECBs nose in it.

    • MC01
      Aug 10, 2018 at 3:58 pm

      The problem is similar to that we have seen many times in countries as diverse as Mexico and Indonesia: when you borrow money in a currency your country does not and cannot control, you are basically adding another layer of risk because you don’t know how how currency exchange rates will behave not in a decade, but in a couple of years.
      As long as the currency exchange rate is under control, everything works fine: see the nigh-on-unbelievable financial excesses of South East Asia in the 90’s when it was assumed the various local currencies such as the baht and the ringgit would remain pegged to the US dollar and the Japanese yen for a very long time. They didn’t and when the baht collapsed the fireworks started.

      In Turkey’s case the problem is somehow even worse: not only have Turkish businesses taken on large amounts of foreign currency denominated debt, but there isn’t even a pegged or remotely strong currency to fall back to. Truth to be told the Turkish government seems to be dead-set on the path of devaluation to make the country more palatable to foreign investors and tourists with complete disregard for all that increasingly harder to service debt Turkish businesses carry.

      Perhaps the Turkish government has an incredibly well disguised ace up its sleeve or perhaps the decision-makers just think serial defaults will not impact local capital markets because we are so desperate for yield we’ll put up with literally everything to get 4-5% (think 100-years, Argentina and bonds). I honestly don’t know.
      But I do know that foreign central banks won’t lift a finger for Turkey, for the very simple reason it’s not their job. That’s a hot potato the IMF and the World Bank will have to handle.

      • cdr
        Aug 11, 2018 at 7:16 am

        Thank you for your detailed reply. Everything you say makes sense. I still wonder about the significance of their geographical location in relation to some of the problems they have had in recent years, but I’ll never know for sure and neither will most people.

      • Gershon
        Aug 11, 2018 at 8:07 am

        Good assessment, MC01.

    • Javert Chip
      Aug 10, 2018 at 9:00 pm

      cdr

      I guess this is where the unknown factor of “contagion” comes into play. If all that’s required is for the EU to eat a major portion of 135B euros, that’s a bad day at the office. If it balloons to something significantly larger, that’s a REAL BAD DAY at the office.

      Putin may have some (also sinking) rubles for Erdogan…or give him some free/reduced oil. NATOs going to look pretty funny if any of this happens.

      • cdr
        Aug 11, 2018 at 7:28 am

        I don’t follow much of that area of the world. I have only noticed the awkward place of Turkey in that area, and I also understand how petulant people can be if they don’t get their way. Is this a long game in play or is Turkey in financial trouble just like many countries before it and for similar reasons? Time will tell.

        Since the article above states the banks in trouble in Turkey are owned by EU banks, it looks a little like the EU is doing it to themselves. Perhaps they should have hedged their Turkish bank assets a little better?

        Again, I’m just a bystander with limited understanding of the details.

  6. Petunia
    Aug 10, 2018 at 2:12 pm

    I posted this comment on your last article but it is more relevant here:

    “Just want to let you know that some of the European banks you mention in your articles, most of which I had never heard of before, are sending us offers to lend us money. We live in the deep south, real flyover country. The latest offer was from BBVA at about ~35%, which was a lower rate than domestic lenders offer at ~39%”.

    Our credit was destroyed by the financial crisis and any assumption that we could pay off even a small loan at these rates is ridiculous.

    • Aug 10, 2018 at 2:24 pm

      Petunia,

      That’s pretty shocking. I heard that BBVA was trying to expand its presence in the U.S., but I didn’t realise they were offering such generous conditions. Thanks for the heads up.

      • Mean Chicken
        Aug 10, 2018 at 3:07 pm

        35% is unworkable, not generous?

    • Bobber
      Aug 10, 2018 at 2:34 pm

      Petunia, aren’t there usury lows that prevent banks from charging such high interest rates on loans? I don’t understand how you could be getting loans offers with rates as high as 39%.

      • Aug 10, 2018 at 3:15 pm

        There USED to be usury laws in the US :-]

        • Unamused
          Aug 10, 2018 at 6:21 pm

          Deregulation has been particularly useful in showing why we used to have regulations.

        • Gershon
          Aug 11, 2018 at 8:11 am

          Before the oligarchy captured the Republicrat duopoly and our institutions of governance. As long as the sheeple continue to sanction the corrupt crony-capitalist status quo with the votes for Wall Street stooges, they have no right to complain about getting screwed over by the banksters and corporations.

      • nick kelly
        Aug 10, 2018 at 5:33 pm

        The ‘pay day loans’ typically for two weeks or so are in the hundreds of percent per year.

        • Gershon
          Aug 11, 2018 at 8:12 am

          Yet they’re doing a booming business.

          You can’t fix stupid.

    • Aug 10, 2018 at 3:13 pm

      Maybe they’re on a fishing expedition to see what they can catch. A loan with this interest rate is almost designed to default. There has to be too much short-term thinking at the bank.

      Say, you borrow $1,000 at 39%, and for 6 months, you make interest payments, and then you stop. So the banks gets to book a profit of about $195 on those interest payments, and that’s great for the bank, but now what? Maybe they’re hoping that you’ll get a new loan that is cheaper, and pay off the current loan.

      I really have trouble understanding the math of these high interest rates because it seems they would almost certainly lead to default.

      • Petunia
        Aug 10, 2018 at 3:44 pm

        I heard the dark lord Blankfein discuss this some weeks ago. Their logic is that over the entire portfolio they make money. They are betting they win more than they lose.

        • Gershon
          Aug 11, 2018 at 4:56 pm

          When “former” Goldmanites control a nation’s money issuance and monetary policy, and have their stooges planted at the highest levels of government, it’s a good bet the Vampire Squid will always have its bets covered by the Fed’s printing press or middle-class taxpayers.

        • sierra7
          Aug 11, 2018 at 10:31 pm

          That’s why Goldman is always doing, “God’s Work” LOL!

      • Ambrose Bierce
        Aug 11, 2018 at 10:58 am

        That’s the way you climb the ladder to a good consumer credit rating. I think mostly people don’t understand credit, the stock market is a claim on future earnings (John Hussman) which makes it a credit market. In the future children will have a bond issued at birth, and their lives and accomplishments will make the bond worth more or less, until finally the bond matures, after many a summer.

      • Christoph Weise
        Aug 11, 2018 at 4:46 pm

        39% is insane. But in general high interest rates serve as a filter for investment projects. In a high interest environment people pick only the best projects to pursue. Capital resources are efficiently deployed and the waste of resources is limited. Zero interest rates on the contrary destroy the investment discipline. You get the shale industry and Tesla.

      • MooMoo7766
        Aug 12, 2018 at 4:18 am

        package… securitise and sell to the greater fool. Nobody holds these things on their books. Then the sharks can send the ‘heavies’ around, strip what’s left…. or foreclose on house/car/land/furniture/rugs…anything.

        Its a food chain thing.

  7. Gershon
    Aug 10, 2018 at 2:52 pm

    Who keeps gold or currency under their pillow?

    • Aug 10, 2018 at 3:03 pm

      Maybe it helps some people sleep?

      • Mean Chicken
        Aug 10, 2018 at 3:12 pm

        I sleep well knowing gold is kryptonite to central bankers and investment vampire banker garlic, keeping it low.

        • WSKJ
          Aug 10, 2018 at 5:04 pm

          Ditto all above re gold under pillow; and what was Erdogan’s purpose in making that remark ? That remark gives him entry into the Trump-Musk twitter club ??

        • polecat
          Aug 10, 2018 at 6:10 pm

          Humm .. Garlic Coins, sliced thickly .. say, in ounces ..
          My that sounds tasty ! .. just hits the spot, piled upon me silver plate.
          Arg !

        • Gershon
          Aug 11, 2018 at 5:00 pm

          I bet the people of Iran and Turkey wish they would’ve exchanged a lot more of their fiat currency for gold before the value of their money plummeted.

    • Maximus Minimus
      Aug 10, 2018 at 7:43 pm

      You should put it in the mattress not the pillow, didn’t you read the manual?

      • sierra7
        Aug 11, 2018 at 10:33 pm

        Good idea for an entrepreneur…..manufacturing mattresses with money pockets!

    • Frederick
      Aug 11, 2018 at 12:54 am

      Many people do and I hear it does help them sleep as Wolf has stated

  8. Gershon
    Aug 10, 2018 at 2:56 pm

    There’s larger geopolitical ramifications here as well. Turkey has been a U.S. ally for years, albeit while pursuing it’s own interests. They are also a key regional power in a turbulent region where the U.S. has a major presence as well. The Turks, especially the military, will not forgive or forget Trump kicking them while they were down.

    • ppp
      Aug 10, 2018 at 4:34 pm

      Turkey: still playing the sick man of Europe. Turkey is opting for autarky, backed by Russia. Russia will be to Turkey what China is to North Korea. Well-played, Vladimir. But it’s really the U.S. abandoning these countries and letting them find a sponsor elsewhere. How long will the U.S. allow Turkey to remain in NATO?

      • Paul Morphy
        Aug 10, 2018 at 6:32 pm

        Turkey is not in Europe. Europe geographically ends at Greece. The faultline politically, militarily historically and geographically between Europe and Asia lies at the sea which separates Greece and Turkey.

        Turkey is not part of the European Union or the Eurozone. Yes there is a section of political opinion in Europe which wants Turkey to be permitted to join the European Union and the Eurozone.

        Greece and Turkey have opposed each other to a lesser and greater extent for centuries. Greece is nominally Christian, Turkey is nominally Islamic. Historically both cultures rub up against one another in the form of Greece/Turkey.

        In modern times however, and with globlisation, it would not surprise me in the least if Eurozone banks had huge exposure to Turkey.

        • Frederick
          Aug 11, 2018 at 12:56 am

          Paul Otherwise known as the “ Aegean Sea”

        • MooMoo7766
          Aug 12, 2018 at 4:20 am

          I assure you, Turkey is much more than nominally Islamic. Its not the 1970s and 80s anyomre. Attaturkism is dead solid.

      • MooMoo7766
        Aug 12, 2018 at 4:23 am

        The point is to allow NATO to fold, and this is the first, weakest and most important step. The USA does not want the ‘old’ NATO anymore. It wants the ‘new’ NATO. In the ‘new’ NATO the enemy is China, not Russia… but the State Dept. sees things differently.

    • nick kelly
      Aug 10, 2018 at 5:50 pm

      The Turkish military’s biggest problem is Erdogan and vice versa.
      It was the military that tried to overthrow him. He still has thousands of them in jail.

      Many Turks are hoping for the day they try again with better luck. If Erdogan tries to turn to Moscow ( like the former strongman in Ukraine, before the revolution ) this will likely be too much for them and the military.

      In effect this will make the US, NATO and the EU allies with the Turkish military and people against Erdogan.

      • Lion
        Aug 11, 2018 at 2:24 am

        If I remember the people did not support the military when they tried to remove Erdogan, and the Turkish armed forces refused to slaughter their own citizens so the overthrow failed. I don’t think Erdogan is going anywhere soon.

        • nick kelly
          Aug 11, 2018 at 4:11 pm

          Notice I said ‘many Turks’ while you said ‘the people’

          When Erdogan decided to change Turkey from a parliamentary system to an executive presidency with himself as head of state and head of the executive, it was put to a referendum in June 2018.
          Here was the result from Wikipedia.

          ‘The constitutional changes were approved by a 51-49% margin, according to official results. However, a last-minute change in the election rules by the Supreme Electoral Council (YSK) during the vote allowed unverified ballots to be accommodated into the count, which the opposition alleges added 1.5 million extra ballot papers.’

          In the purge after the failed 2016 coup the army was not the only casualty, so was the legal system. Over a thousand judges were fired, along with university profs, etc. It’s a crime to criticize Erdogan.

          So I guess it depends which Turks you talk to.

          I think that the Middle East strongman bit, with a toxic combination of religion and nationalism is the last thing this place needs. It would not surprise me if Turkey ends up with a Lebanese- type civil war.

      • Gershon
        Aug 11, 2018 at 5:07 pm

        Extreme nationalists in Turkey have been pushing the ideology of Pan-Turkism or Turanism, which has got to worry Russia since 50 million Central Asians in the former Soviet Republics are of Turkic extraction. So Putin might not be too eager to come to Turkey’s aid.

      • Mean Chicken
        Aug 11, 2018 at 5:59 pm

        I’m pretty sure the attempted coup was drummed up by Erdogan thus fake. At least that’s my recollection….

    • Javert Chip
      Aug 10, 2018 at 9:39 pm

      The Turks have been doing a pretty good job of knocking the US military around for the past year or more. Refusing some over-fly requests, refusing selected use of Incirlik Air Base, bombing Kurds and other supposed USA-aligned forces are not strong signs of closely aligned USA-Turkish national interests.

      Having long memories is all well and good; understanding your (ie Turky’s) national interest is better.

  9. EEngineer
    Aug 10, 2018 at 3:45 pm

    Any possibility that Turkey will intentionally default to try to spark an LTCM type collapse?

    • nick kelly
      Aug 10, 2018 at 11:29 pm

      I guess if you had a beef with a restaurant you could blow your brains out at the table to shut them down for a couple days,

  10. ewmayer
    Aug 10, 2018 at 4:10 pm

    As I noted to NC’s Yves Smith when I fwded DonQ’s related recent “Turkish Banks Scramble” article to her, couple all these goings-on with the ever-more-likely prospect of a hard Brexit and things could get interesting (in the proverbial ancient-Chinese-curse sense) very fast. Such are the fin-market interlinkages and ‘unexpected’ events of which Black Swans are made, and the current global multiyear asset-price “everything bubble” is ripe for one, it’s a fat juicy low-and-slow-flying bug just waiting for a windshield, to abuse another animal-world metaphor.

    • ewmayer
      Aug 10, 2018 at 4:12 pm

      And just saw the following headline on Yahoo Finance: “Trump ‘doubling’ tariffs against Turkey”.

      • Lion
        Aug 11, 2018 at 2:32 am

        Sounds like economic warfare ? Humm, against a NATO ally ?

    • ppp
      Aug 10, 2018 at 4:35 pm

      Just as long as the Archduke doesn’t visit Sarajevo, we are safe.

  11. peter
    Aug 10, 2018 at 4:17 pm

    Coming home to roost eh? All the greedy foreign banks trying to spread their venom and misery to the Turkish population, not content with screwing their own people. But now they’ll get burnt when the Turks can’t or won’t pay. Karma. But of course, it’ll be the foreign customers and taxpayers who bail the banks out, so why should they care? They never loose out or get burnt, all the time their buddies run things for them in government.

    • Javert Chip
      Aug 10, 2018 at 9:54 pm

      Peter

      Guess you didn’t get the memo:

      Turkey & Greece may be somewhat similar in terms of “soft/hard/whatever default”.

      Greece GDP in 2008 was $354B; today it’s $200B – Greece has been moved a long way backward on the 3rd-world to 1st-world game board. No reason to think Turkey will fare any better.

      FYI: Turkey’s current $800B GDP is 4 times Greece’s $200B; however, Turkey’s population is 8 times larger.

      Greece got rough treatment from the EU, but NOBODY (read: Germany) is standing in line to “help” Turkey

      • nick kelly
        Aug 11, 2018 at 10:04 am

        When Greece adopted the euro in 2001 its GDP was 136 billion.
        That’s when the credit party began.

        GDP measures expenditure on anything. The government started expanding its army of middle level bureaucrats who end up by 2008 being paid more than their equivalents in Germany.

        It designated hundreds of occupations arduous allowing full pensions at 55 (e.g. disc jockey, hair dresser)
        It began innumerable projects.
        It has 4 times as many teachers per student than the EU average, with the worst results.
        It was so inept it was swindled out of hundreds of millions by an obscure sect of monks.

        Of course this set off the usual real estate boom as in Spain.

        And lo, a mere seven years later GDP has magically risen 250% to 350 billion.
        But the production of goods hasn’t and neither has tax income.

        This stuff is from the book ‘Boomerang’ by Michael Lewis (The Big Short etc) He goes into depth about Greece and taxes.

        No receipt is ever given including at the swank hotel where he interviews tax collectors. No one has ever gone to jail for tax evasion. Not paying taxes is so ingrained in the Greek psyche
        Lewis thinks it may trace back to the Turkish occupation in the 1800’s.

        But the point is that Greece never was a first- world country.
        It got the EU credit card and started pretending it was, but the
        rigorous accounting, industry etc., was never there.

        No doubt it was a happier place in 2001. But is it the EU and the euro to blame or the populist governments that blew the money?

  12. Unamused
    Aug 10, 2018 at 6:12 pm

    We’re just lucky that political strongmen in other countries are more cautious and listen to the experts when they start screwing around with economic policies about which they know nothing.

    Oh, wait.

    • nick kelly
      Aug 10, 2018 at 7:44 pm

      Luv it.

  13. Bobber
    Aug 10, 2018 at 8:01 pm

    Erdogan asks everybody to turn their gold for Lira. Can we assume Erdogan has already turned in all of his personal gold, in loyalty to the country?

  14. Rick
    Aug 10, 2018 at 9:47 pm

    Isn’t this the standard way out of a debt mess?

    Just let the currency free fall and re-instate a new currency to wipe out debts?.

    A similar thing happened with German Mark in 1921 when germany could not afford to pay war debts.

    • Aug 10, 2018 at 11:25 pm

      Rick,

      But much of this debt is denominated in foreign currency (euros mostly). That foreign currency debt becomes very difficult to service for local businesses when the local currency collapses.

    • nick kelly
      Aug 12, 2018 at 10:06 am

      The inflation in Germany wiped out the savings of the middle class. One man cashed in a life insurance policy to buy a loaf of bread.

      This did not end well for Germany. This inflation did not wipe German war debts. They were not denominated in Germany’s paper money.
      Some relief came later. Too late.

      The collapse of a currency is something the English- speaking world knows only from a distance. It should not be compared to a company entering Chapter 13 or an individual going bankrupt. The destruction of
      government bonds, i.e., promises, also frays non-financial promises.

      Human capital is eroded. ‘Human capital’ means the non-financial bonds of trust and cooperation between persons who are not related.

      The financial turbulence can become societal turbulence.

  15. jb
    Aug 10, 2018 at 10:08 pm

    Turkey is a latin american style country in Euro-Asia.

  16. Cynic
    Aug 11, 2018 at 1:25 am

    Erdogan’s fundamental line is:

    ‘The West has been a false friend, in reality determined to keep Turkey down. We were once great under the Ottomans. Vote for me and national strength!’ Basically MTGA.

  17. Steve clayton
    Aug 11, 2018 at 2:22 am

    Interesting one on this especially from the point of BBVA is how they’ve diversified from Spain to other countries such as Turkey, due to the fact the profit margins on loans are so low in Spain. In effect the ECBs actions in helping the European banks survive and artificially keep borrowing costs low have made the banks take on more riskier business to make money.

    • Mean Chicken
      Aug 11, 2018 at 6:15 pm

      European banks will probably own more Turkish real estate once the wave of foreclosures washes back to sea.

      Just like in the US where there are more renters than homeowners now than before the manufactured financial crisis.

  18. hotairmail
    Aug 11, 2018 at 1:21 pm

    Erdogan is a modern day Cnut, thinks he can hold back the waves by edict. ;-)

    Erdogan also goes to prove that arrogant, opinionated people should never play with the markets – they’ll lose their shirts.

  19. Christoph Weise
    Aug 11, 2018 at 4:37 pm

    Since 2008 the banks account for their receivables using historical cost instead of market prices (provided the intention is to keep the assets for longer). This makes it next to impossible to understand the balance sheet of a bank. It is therefore very hard to forecast contagion effects which could occur in Spain and elsewhere. The rogue ECB would prevent any cracks from becoming visible. Turkey’s public debt is like Switzerland’s very low at 30% of GDP (Italy 130%, Greece 180%). By GDP Turkey is roughly comparable to Indonesia or Mexico. External stress is likely reducing debt levels and making the economy more self-sufficient like in Russia.

  20. Paul
    Aug 11, 2018 at 6:28 pm

    Anybody know a good turkish fund?

    I’m gonna chuck $50 at it and buy the dip!

    • Gadi
      Aug 13, 2018 at 4:44 pm

      TUR ETF dropped 10.97% today and 56.12% since the beginning of the year. Have fun

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