Continental drift

Europe holds a key to Turkey's crisis

Tayyip Erdogan has once again managed to turn a political problem into a financial scare. True to form, the Turkish prime minister greeted a widespread corruption probe with aggressive claims of a foreign plot to bring down his government. But the populist ploy to energise his supporters makes investors wonder how stable the Erdogan government is. Meanwhile, Europe can see what can go wrong in Turkey when Brussels plays hardball about the country's accession to the EU.

The probe, launched last week, has snared businessmen, bankers and public officials. It may be a sign of the widening rift between two wings of Turkey's political Islam - Erdogan's ruling AKP and the followers of US-based preacher Fethullah Gulen, said to be influential among top police and justice officials. If the Gulen movement is indeed behind the arrests, it only confirms the weakness of the rule of law in Turkey - which the Erdogan government itself has done little to promote: it has been known for staging politically-motivated trials, based on doubtful evidence and little regard for defenders' rights.

Street demonstrations last summer against urban renewal plans in Istanbul had already shaken Erdogan's self-assurance and shown him an embattled leader prone to conspiracy rants. It came at a bad time, as the US Federal Reserve's plans to reduce the flow of new dollars into the economy are hitting Turkey. The country needs a permanent flow of hot money to finance a current account deficit running at more than eight per cent of GDP. The Turkish lira has lost 15 per cent against the dollar since the beginning of the year and the central bank has dug into reserves to prop it, since it would rather not raise interest rates.

Erdogan has major work to do to keep Turkey on the road to modernisation. But Europe isn't faultless. In the last 10 years, reforms in Ankara have largely coincided with times when Turkey's accession to the EU looked like a serious prospect. And, the Turkish government has moved firmly backwards since France's and Germany's opposition to membership became clearer. If Europeans want to help openness and reform in Turkey, they know what they have to do.