Turkey on the Economic Brink, Explained in a Dozen Charts

Turkish delegation returns home after meeting in US

Economic turmoil hits Turkey, US bank stocks react

A financial shockwave ripped through Turkey on Friday as its currency nosedived on concerns about its economic policies and a dispute with the USA, which President Donald Trump stoked further with a promise to double tariffs on the North Atlantic Treaty Organisation ally.

A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul, Turkey August 2, 2018.

On Friday, the Turkish currency plunged to another record low amid concerns over Erdogan's unorthodox economic policies and a diplomatic row with the United States that has led to sanctions.

The lira briefly fell as much as 14.6 percent - its biggest one-day drop since early 2001 - before paring losses.

Bank shares across Europe fell and the euro slipped to its lowest since July 2017 as the Financial Times quoted sources as saying the European Central Bank was concerned about European lenders' exposure to Turkey.

The president has declared that American importers' reliance on foreign metals poses a national security risk to the U.S., and he also has increased the cost of these imports on Japan, Turkey and members of the European Union, the paper reported.

Investors piled into "safe" government debt, with German yields hitting three-week lows and the yield on the benchmark US 10-year Treasury note falling to 2.88822 percent.

President Trump ordered a doubling of USA tariffs on steel and aluminum imports from Turkey Friday, escalating a diplomatic spat with a key North Atlantic Treaty Organisation ally.

The lira, Trump noted on Twitter, "slides rapidly downward against our very strong Dollar!" The company had said in a quarterly filing that Turkey wasn't among its top 25 country exposures at midyear, which means it's something less than $3.7 billion. On Friday, he said the country had to take steps in answer "to those who have waged an economic war against us".

He said he had authorised higher tariffs on imports from the United States' Nato ally, imposing duties of 20 per cent on aluminium and 50 per cent on steel. The White House said he had authorized them under a section of US trade law that allows for tariffs on national security grounds.

While increased tariffs send a diplomatic signal, they are not likely to have a major economic effect in the U.S. According to the Peterson Institute for International Economics, Turkey supplied just 4.2 percent of America's imported steel and less than 1 percent of imported aluminum previous year. Overnight it had retreated to its lowest since November 2016 on threats of new US sanctions, weakening beyond the psychologically important 65-per-dollar threshold. Trump, who had secured the release of a Turkish woman activist being held by Israel and just days earlier he had been exchanging fist bumps with Erdogan at a North Atlantic Treaty Organisation summit in Brussels, took it as a personal affront.

Erdogan's characteristic defiance in the face of the crisis has further unnerved investors.

Erdogan said that there were "various campaigns being carried out" against the country.

Erdogan on Friday once again urged Turks to exchange gold and dollars into lira to stop the currency from plunging.

'This is a national, domestic battle.

"Some countries have engaged in behaviour that protects coup plotters and knows no laws or justice", he said. He added that the country will continue to enjoy good economic relations with several major nations.

Turkish authorities arrested Brunson in December 2016, claiming that he was a spy and was linked to a failed plot to overthrow the government. Gulen has denied the allegation. But Israel released that woman last month, and pastor Andrew Brunson of North Carolina remains in a Turkish prison.

Erdogan today called on Turks to support their struggling currency.

"Confidence needs to be regained". But now, the relationship appears to have gone sideways. Hard currency debt issued by Turkish banks suffered similar falls.

After winning a June election with revamped powers, Erdogan tightened his control over the central bank and appointed his son-in-law Berat Albayrak to head a newly-empowered finance ministry.

This did nothing to revive the lira.

Ivo Daalder, a former USA ambassador to North Atlantic Treaty Organisation and now president of the Chicago Council on Global Affairs think-tank, said Turkey could grind decision-making at Nato's headquarters in Brussels to a halt if the dispute with Trump got out of hand. "Albayrak's plan was uninspiring at best".

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