Turkey’s EU entry delayed -- Not good for euro funds

November 28, 2006

The EU’s President, Finnish Foreign Minister Erkki Tuomioja, announced on November 27, 2006, that Turkey’s accession process to the EU has been delayed until at least January, when the EU Presidency moves to German Chancellor Angela Merkel.

The talks are stalemated by Turkey’s refusal to open their ports to Cyprus, an EU member. Turkey hasn’t recognized the Greek-controlled Cypriot government since 1974, when Turkey supported northern Cyprus to combat a Greek-controlled military coup to unite Cyprus. Turkey wants to open their ports only to Turkish-controlled Northern Cyprus, which Southern Cyprus refuses to recognize. Turkey agreed to open the ports a year ago, which allowed talks to begin.

The next step is for the EU’s General Affairs Council to decide on December 11, 2006 what recommendation they will make to the EU Summit on December 14, which will make a decision on Turkey’s entry to the EU.

What Turkey’s Accession to the EU Means:
Turkey provides the EU many advantages:

• Turkey's location provides the EU with a better trade border with the Middle East and Central Asia, especially as a safe route for oil and natural gas.
• Turkey has a younger workforce to replace Europe's aging laborers.
• As a progressive Islamic country, Turkey could provide a bulwark against Muslim fundamentalism .
• Turkey’s GDP growth rate is 7.4% while the EU’s is 1.7% (Source: CIA Factbook, 2005 estimates)

There are also several fears on the part of EU countries:

• The potential for more Muslim immigrants, and the potential difficulties in cultural assimilation that entails.
• The size and poverty of Turkey could drain Europe’s resources, much as the assimilation of Eastern Germany did to Western Germany after the fall of the Berlin Wall. Turkey’s per capita GDP is one-third of the EU average of $28,100.
• The EU already has political rifts and difficulty in homogenizing their economies. Recent additions of Eastern European countries (Bulgaria and Romania will join in January 2007) has caused many members to fear that the EU has grown too large, too fast, and may fall apart if Turkey is added. It would also open the door for other poor countries that want to join, such as Ukraine, Croatia and Moldova.

Many in Turkey are still emotionally tied to the Northern Cypriots of Turkish descent. Therefore Turkish leaders cannot open their ports to Cyprus until the 2007 general elections. Furthermore, many in Turkey are worried that concessions required by EU membership would dilute Turkey's culture, and weaken its economy.

The EU members are divided on the issue, and unanimity is needed for Turkey to become a member. If Turkey is denied membership, not only would the economic growth of Europe suffer, but so would political relationships. This is especially crucial at a time when the all countries are deciding whether to reap the long-term rewards of globalization and cooperation, or the short-term political gains from isolationism and nationalism.

Action Steps:
To compete with “Chindia”, the EU needs Turkey, so a definitive "no" vote would limit the EU's growth. This is another “wait and see” situation. For now, hold onto European mutual funds, but don’t increase until Turkey’s accession has been decided.

Source: Chine People’s Daily Online, “EU divided on entry talks with Turkey” November 14, 2006; EU2006.fi, web site, “Turkey-Cyprus issue after Tampere discussions on November 27”; CIA Fact Book