EURASIA CRITIC JULY-AUGUST 2010

US-Iran Secret Trade How to Abolish an Embargo?

By Ahmed Zahid

July-August 2010

Negotiatios with the EU and Expectations

By Prof. Dr. Emin Carikci

Falling Apart

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EurasiaCritic July-August 2010 Vol. III ISSUE 4 Monthly Magazine on Eurasian Politics Published every month by Eurasia Critic Yayincilik Ltd. Head Office: Esat R. No: 55/5 Kucukesat ANKARA/TURKEY T: 0090 (312)4170383 F: 0090 (312)4170392 Publisher Hakki AHMETBEYOGLU Editors Ozer CETINKAYA Ali ALTAN Assistant Editor Burcu OZCELIK Volkan GUNER

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Regional Directors Middle East Yousuf AL SHARIF Southestern Asia Fazal-UR-RAHMAN Caucasus Hasan KANBOLAT Balkans Ibrahim ARSLAN India Prof. Dr. Ajay Kumar PATNAIK Azerbaijan Ganire PASHAEVA Syria Ibrahim HAMIDI Kazakhstan Murat SHAHANOV Uzbekstan Ali KULEBI Japan Prof. Dr. Masanori NAITO Eastern Europe Shemsey VODINOV Energy Strategies M. Mete GOKNEL Nuclear Studies Prof. Dr. Saleh SULTANSOY Millitary Affairs David AXE

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UK Represantative Gizem Fowler Jamie Fowler

US-Iran Secret Trade How to Abolish an Embargo?

By Ahmed Zahid

Turkey And Greece As Problematic Neigbors-Is The Economic Crisis A Turning Point In Turkish-Greek Relations?

By Serkan Berk Karadeniz

Advisory Committee George HEWITT Nuzhet KANDEMIR Ismael HOSSEIN-ZADEH Norman STONE Ali KULEBI Media Director Cigdem BEDIZ Photography Provider: AFP Illustrations Mahmut KARATOPRAK Distribution Manager Mert ALTAN ISSN 1308-1560 Printers: MRK Matbaacilik HOW TO CONTACT US General enquiries: 0090 (312) 4170383 info@eurasiacritic.co.uk Letters to the Editor : editor@eurasiacritic.co.uk Š2010 Eurasia Critic News Agency Ltd. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of Eurasia Critic News Agency Ltd.

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Russian Answer to Terrorism

By Vladimir Karyakin

50

The Performance of Azerbaijan Economics

By Dr. Geray Musaev

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Nuclear Chaos

By Volkan Guner

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Beyond The ‘Trinitarian War’: Reflections on Contemporary Armed Conflicts

By Klavis Kolasi

26

56

Negotiatios with the EU and Expectations

By Prof. Dr. Emin Carikci

Turkey-Armenia: Normalization Process still Continues?

By Oya Eren

36

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TURKISH FINANCIAL SERVICES INDUSTRY REPORT

A Deadlock Again?

By Tugce Ezgi Yuksel

Falling Apart T

urkey’s steps should not be understood as the first pebble falling onto wavy international water. These are seen as suspicious and worrying steps for the Western World.

They are signals of a new world for the Eastern World. Turkey’s movements which are contemplated by West carefully and reacted against points out a falling apart: 1) Exchange treaty with Iran.

2) Rising tension because of Israel’s murder of innocent Turkish Citizens in open seas.

3) Turkey’s rejection of sanctions upon Iran in UN Security Council.

4) Signing of Middle East Union treaty between Turkey, Jordan, Syria and Lebanon.

5) Turkey’s periodical presidency of CICA. 6) Signing of a comprehensive energy treaty with Russia.

Historical Background

Editorial 4

EurasiaCritic July-August 2010

Turkey’s new positioning which is called as changing of axis was actually started in the beginning of the 90s. Turkey was searching for a new direction when it was faced with bloody terror actions. NATO was not supporting its member Turkey about Turkey’s most important security problem. On the other hand Europe was the base for anti-Turkey terrorist activities. Turkey could only receive Leopard tanks which cost billions of dollars with the condition of not using the tanks in the conflict zone. The most powerful financial

formations of terrorist organization were established in Europe. Ankara analyzed those issues and saw the collapse of Soviet Union as an opportunity and Turkey got closer to Russia.

Armament Treaty which was signed between Turkey and Russia was the first agreement which was signed between a NATO member and Moscow in 1992.

The backbone of Turkey – West alliance was US and the basis of this alliance was Turkish Army. The first step towards the falling apart was taken by Turkish Generals with this movement.

In 1997, this time Turkey created a new window with “region centered foreign policy”. With this definition which was taken into the government agenda, Turkey was giving the signals of a new way: having regional policies on the basis of good relations with neighbors [1].

Economic Crisises in 1995 and 1996 were directed Turkey towards this way of understanding.

Washington tried to use the EU card to change this situation. After the high pressure upon Turkey, Turkey was pushed into the EU tunnel. Ankara was relieving itself by seeing itself as the balancing element for EU against US. Washington was aware of its role of holding the ropes. First break to the regional based foreign policy was started.

In 2002, US plan of invading Iraq through Turkey was rejected by Turkey and this was a reasonable action. Resistance of Ankara was took the regional policy into the agenda again. This situation may be related to huge change

in Turkish politics and quick rising of Erdogan. Erdogan government gave up the regional policy in their first period of power. Concrete evidences of this policy were Erdogan’s high interest to EU and his support to US invasion of Iraq through Turkey.

Path of Erdogan While US prestige was shaken between 2002 and 2007 among the world Turkey became a country in which antiAmericanism is mostly spread. An ally of NATO for half a century and a secular democracy stepped forward among the Islamic Countries. This situation can only be explained by one word: disappointment.[2] This disappointment influences the Turkish Society’s attitude towards EU. While in EU countries, rate of people who believe in Turkey’s membership to EU is %54, in Turkey this rate is %28.[3] Turkey feels betrayed by the countries which are assumed to be its allies for many years. Turkish Government implicates that the fact behind the rise of terrorism in Turkey is US, EU and Israel. It should not be forgotten that, Erdogan had never gained power from well designed foreign policies but his power derives from his emotional attitude towards the people. His movements nothing more than this.

What is Next?

World is not like old times and Turkey is aware of this. While Turkey is getting away from its old fears, it also

faces them off. From now on a person cannot introduce another person as a monster while they are eating hamburger together. Turkish people are exploring their position again. It is natural that politicians are getting used to this changing concepts because keeping their power is more important than changing their policies. While all these happening, opinions of Turks are consistent.

Turks are aware of that Western systems are collapsing and new powers rising in East will shape the new world.

In this inevitable process, historical relations stepping forward instead of artificial interests. This is the correct approach.

Turks are believing that from now on Turkey does not need US, US needs Turkey. Ankara’s fear of having a punishment because of Turkey’s policies towards Israel and Iran aims to shake this confidence.

Increasing terrorist attacks, Iraq(Lands invaded by US) oriented attacks, EU’s approach of seeing Turks as other falls Turkey apart from the NATO. Turkey will be shifted through a direction in which nationalism will rise.

It is inevitable that Turkey will fall apart from EU before NATO. Obstacles raised by EU to Turkey may cause this result in the short term. In the middle term, Turkey will cut the negotiations with Brussels and Turkey will have strategic alliances with European Countries (Germany, Italy) separately.

In a situation like that Turkey’s relations with Washington will be changed too. Turks will have Middle East and Central Asia policies independent of US and while doing this Turkey will have alliances with Russia and Iran.

Security dimension of these alliances will determine the NATO – Turkey relations. An Asian Union which is based on tough principles will easily replace NATO for Turkey.

Russia and Iraq will be the biggest economic allies of Turkey instead of Europe. This kind of a economic alliance will prevent the use of PKK as a element of pressure against Turkey.

Europe which is trying to hide behind the medieval walls will get smaller if it does not poison itself like a scorpion. Great Chinese Wall was built for protecting China from the Turkish attacks which might come from central Asia.

This time, Turkey which does not have a membership to EU will be a wall among Europe and Asia, not a bridge.

While all these achievement are going on, Erdogan will become an old figure for Turkish Politics. Thus Turkey’s tendency towards east is more than Erdogan’s Islamic roots. Just like said in a old Arabic idiom: one bowl of fresh water is better than a bucket of dirty water.

[1] Bulent ECEVIT; The New Turkey Magazine, MARC-APRIL 1995 [2] The Pew Research Center; Global Image for USA, 17 June 2010 Chapter 7 [3] GMF; Transatlantic Trends 2009 EurasiaCritic July-August 2010

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Iran

US-Iran Secret Trade How to Abolish an Embargo?

By Ahmed Zahid

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EurasiaCritic July-August 2010

Iran

R

ecent sanction decision of UN through Iraq. Suleymaniye is dependent may push Iran back or are the on Kurdistan Federal Republic and has sanctions consist of a hypoc- a critic location is in the center of border risy? Answer of this question will be trade. Secret trade between Iran and shaped by world’s next 10 years.

US is also planned in this city. Fronting Großansicht des Bildes mit der Bil- companies which are dependent to Iran dunterschrift: Daniel Scheschkewitz regime, use the strongest groups of SuMay UN’s sanction decision upon Iran, leymaniye as agents. Agent groups are could push Iran back? taking millions of dollars and they are UN decided for sanctions upon blocking it in a bank in Northern Iraq.

Iran again. Iran’s tank, war helicopter, They find American drawees. Codes of and missile system import from for- desired goods are sent by e mail to US. eign countries will be American companies Concrete steps forbidden. 40 people send the demanded and associations who machine parts, drill of International have a relation with machines or centrifuCommunity about the Iran’s nuclear gal machines to the Iran’s Nuclear program, will have fiNorthern Iraq. Goods Program should nancial and travelling are generally delivered be appreciated but constraints. New sancat Turkey-Iraq border success of these steps tions are also aiming and they are transto an important base ported with the escort is suspicious. of the regime, Revoluof American soldiers tionary Guards. to Suleymaniye. When Concrete steps of International the goods are delivered to the custom, Community about Iran’s Nuclear Pro- money sent to the US companies from gram should be appreciated but success the bank. of these steps is suspicious.

Recently a fronting company from The trade between US Companies Iran Regime had a request from a and fronting companies of Iran goes on trusted group from Suleymaniye. They

wanted from group to become their agent and they said that they could only buy needed machinery and centrifugal parts from US. They found the US company in May. Iranians sent the codes of their desired special parts by e mail to the US company. Agreement had set and the money was blocked in Suleymaniye. They are counting days for delivery now.

There are maybe hundreds of American, Iranian and Iraqi sides whose names and letters are secret. Iran provides technology with this way and continues its nuclear program. UN Security Council had taken sanction decisions because of the crisis derived from the Iran’s Nuclear Program but these decisions did not change the Iran’s attitude.

Neither economic embargo or Bush’s threats or EU’s negotiation efforts did not changed Tehran’s attitude.

UN Security Council had some decisions against the Iran’s Nuclear Program in the past but those decisions did not affected Tehran policy. Even economic embargo or threatens of Bus neither efforts of EU in the proceedings could not change the attitude of Iran.

Only truth was the Uranium ExEurasiaCritic July-August 2010

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Iran

List of Sanctions Participants of Nuclear and/or Ballistic Program President of Isfahan Nuclear Technology Center which is a Department of Iran Atomic Energy Association – Cevad Rahiki

Associations Included in Nuclear Program Thermostat producer Amin Industrial Complex Light Weapons Producer – Armament Industries Group AIG Defense Technology and Science Research Center (DTSRC) Doostan International Company (Ballistic Programs) First East Export Bank – It has a relation with Bank Mellat which is known with Nuclear Program Kaveh Cutting Tools Company – Already under the circumstances of

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EurasiaCritic July-August 2010

the sanctions, known with Defense Industrial Organization.

Babaie Industries – Department of Aerospace Industries Organization Malek Ashtar University Modlex – Logistics export department of Iran Defense Ministry, blamed for selling weapons.

Mizan Machinery Manufacturing Modern Industries Technique Company Agricultural and Biologic Nuclear Research Center Pejman Industrial Services Corporation Sabalan Company Şahid Karrazi Industries Şahid Sattari Industries Şahid Sayyade Şirazi Industries Special Industries Group Tiz Pars Yazd Metallurgy Industries

change Treaty between Turkey, Brazil and Iran. Sanctions made this treaty useless. Suspicions should be started at this point. Alliance of ”Outsiders” had taken Washington’s toy from its hands. US feared from an initiative for archenemy Iran which was designed by Continental neighbor Brazil and Turkey which is a NATO member for 50 years.

It was understood as pushing up of new world order through US borders. This understanding of US is true but its capability was limited. So US insisted on the sanctions.

Now the pressure is increased. Aim of the sanctions is not the poor people of Iran, aim is the representatives of the regime and profit partners of the regime. If the content of the sanctions is examined, it can be clearly seen that not only the mullahs but also the trade bourgeois is a power factor. Financial and travelling constraints will be

Iran Organizations depended to Revolutionary Guards Fater Institute Haragehe Sazandegi Ghaem Ghorb Karbala Ghorb Nooh Hara Company Imensazan Consultant Engineers Institute Hatem el-Anbiya Construction Headquarters (KAA) Makin Omran Sahel KAA subesi Oriental Oil Kish Rah Sahel Rahab Engineering Institute Sahel Consultant Engineers Sepanir Sepasad Engineering Company

Organizations depended to Republic of Iran Water Lines Irano Hind Shipping Company IRISL Benelux NV South Shipping Line Iran (SSL) problematic for Iran trade world. Iran threatens UN and International Atomic Energy Agency with ending up the negotiations about Nuclear Program.

Sanctions have a possibility to success if only they are part of a long-term strategy. There is no such a strategy seen in these sanctions, these sanctions are more likely to decisions which are held for just making something. Probable results of the sanctions can be listed briefly.

1) Iran Regime will become harsher against the foreign pressure.

2) Chance of diplomacy will decrease.

3) Opposition in Iran will become weak.

4) Sand cloud will give Iran more time.

Hypocrisy Tehran also knows that China and Russia do not desire the crisis to grow up. In contrast with the former president Bush, new president Obama is not

leaning towards an military action upon article. Sanctions empowered the govIran. If the stress between Turkey and ernment in this issue.

Sanctions are consisted of controlIsrael is considered, it is not possible ling the cargo transthat Washington would portation (ships, allow Israel to attack President Ahmedinejat planes and vehicles) Iran’s nuclear infrahas bigger troubles which are suspistructure. than sanctions in these cious of transporting By the sanction dedays. There is a death materials for Iran’s cision government had silence in Iran while nuclear program, forpassed the first annivera few days remaining bidding the weapon sary of bloody suppress selling to Iran, limitof opposition in peace. the first anniversary ing banking and inRegime is concrete of the bloody suppress vestment activities about suppressing any of government opposition and rejectand banning wealth opposition. ing all criticism in the owned by Revolufuture too. Sanctions do tionary Guards. This not beneficial for democratic forces in is a hypocrisy because the people who the country, there is nothing about situ- decides for sanctions also abolishes the ation of human rights in the decision sanctions.

EurasiaCritic July-August 2010

9

Chaos Theories

Nuclear Chaos

By Volkan Guner

10 EurasiaCritic July-August 2010

Chaos Theories

‘A

nuclear weapon is an explosive device that derives its destructive force from nuclear reactions, either fission or a combination of fission and fusion. Both reactions release vast quantities of energy from relatively small amounts of matter; a modern thermonuclear weapon weighing little more than a thousand kilograms can produce an explosion comparable to the detonation of more than a billion kilograms of conventional high explosive.

Thus, even single small nuclear devices no larger than traditional bombs can devastate an entire city by blast, fire and radiation. Nuclear weapons are considered weapons of mass destruction, and their use and control has been a major focus of international relations policy since their debut.’ [1] A nuclear weapon can be described briefly like above. It seems to be like a toy, when a person tries to explain its functioning and affects. Issue of nuclear armament is not this much simple. Nuclear armament has a crucial affect on world politics and it will be one of the determinants in the future of human lives. International treaties which aim to control nuclear armament and nuclear proliferation treaties seem to protect world from radioactive massacres but this is no more than a sweet dream.

Two leading powers about nuclear weapons are USA and Russia. These two countries own nearly 90% of world’s all nuclear weapons and their development of nuclear weapons will not be controlled. It is not clear that what those two countries developing underground. USA paranoia of Iran’s nuclear power is derived from USA itself because USA does the same thing which USA blame Iran for.

US is insisting on the sanctions which will limit Iran’s nuclear program, also US informally threatens Iran with a possible intervention which will be aiming at stopping the nuclear program of the Iran and punish Iran Government.

This is a kind of US tradition over the countries which US sees as “threats”!!!

On the other hand new nuclear fuel swap proposal which was signed by Tur-

USA paranoia of Iran’s nuclear power is derived from USA itself because USA does the same thing which USA blame Iran for. key, Iran and Brazil, constructs a new alliance for nuclear power. Turkey and Brazil rejected the sanctions on Iran in the UN Security Council. Sides are getting sharper and nuclear power is becoming unstoppable. US is the most powerful country on the nuclear energy and nuclear weapons, if nuclear energy and nuclear weapons are so much dangerous and if they should be controlled, should not the sanctions applied to the US first?

Russia’s concerns about the mis-

sile shield project which is planned to be constructed over Europe should be a signal for all the world that Russia is also developing nuclear weapons and Russia desires to use those weapons effectively when needed. Russia should prevent the nuclear missile shield project to achieve these aims. It is also known that Russia has an important nuclear heritage from the Soviet Union.

Russia does not refrain from showing its nuclear power by selling nuclear technology or building nuclear power EurasiaCritic July-August 2010 11

Chaos Theories main reasons and determinants of this plants to other countries.

Russia will construct a nuclear conflict will be the nuclear power.

Uranium enrichment shown as a power plant to Turkey and Russia also way to produce more planning to sell nuclear energy and it is a need weapons and nuclear Nuclear energy has a for industrial and enmissile infrastruchuge and long lasting ergy development. ture to Iran. All these power so growing Uranium enrichment events show that the world population will is not only consists of sides are getting more need it. If human kind this, if nuclear techclear. Russia will have chooses to enrich nology is developing, the leading role in the nuclear weapons are Iran side and US is so the uranium for not developing too. If much against Iran’s enriching world but uranium is enriched nuclear program and killing people then and it can produce US is aiding Israel for there will not be a more energy then a crushing Iran’s nuclear world to live in the nuclear missile or you plans. Israel’s plans to future. may call it a nuclear sabotage Iran’s nuclear bomb will have more program is also known. because of the enriched matei ti off iimpactt b MOSSAD agents are assassinating ficials and engineers of the Iran nuclear rial used in it. If you think that nuclear energy will be important program.

Old rivals US and Russia are be- in the future and it will coming hostile to each other day by be used as a weapon in a day. Start 2 which was signed for nucle- war situation, huge masar weapons proliferation cannot stand sacres will be on the way. valid for too much. Iran and Israel are In this sense sanctions both aggressive against each other and towards the nuclear prothey may become tools for a 3 rd World War. In a situation which Iran and Israel gets into a conflict world powers will be divided into two and one of the

12 EurasiaCritic July-August 2010

grams are must but this sanctions issue is a tool for countries who have power to threaten other countries which desire to have power. So these sanctions are not result of a good will or in other words, US and UN are not insisting on these sanctions for protecting human lives. US wants to be the only power which can use nuclear weapons. It seems to be a quite simple and classical approach but that is the truth beyond nuclear power issue.

Today’s technology gives the chance that people can use nuclear energy to develop and enrich world. Nuclear energy has a huge and long lasting power so growing world population will need it. If human kind chooses to enrich the uranium for not enriching world but killing people then there will not be a world to live in the future. Nuclear weapons’ affect is not only a destruction affect radioactive remains of the nuclear missiles will simply destroy everything which humans live for. www.wikipedia.org

[1]

Chaos Theories

EurasiaCritic July-August 2010 13

Recent Wars

Beyond The ‘Trinitarian War’: Reflections on Contemporary Armed Conflicts

By Klavis Kolasi* “If God grants me life, after madness, illness, crime, sexuality, the last thing that I would like to study would be the problem of war and the institution of war in what one could call the military dimension of society.”

Michel Foucault

Introduction

W

ho fights and dies in the armed conflicts today? What are the changes in war and what are simply contemporary manifestations of an ancient phenomenon?

These are some of the central questions occupying the minds of scholars regarding the role and nature of war in the contemporary era. War is now considered as a classic issue of security studies, or to use a metaphor, the “world’s classic book” which must be read and understood by every student and prac-

titioner of security studies and International Relations (IR). When we realize that was the need to study the causes of the First World War which triggered the emergence of IR as an academic discipline in 1919 at Aberystwyth University, we can easily understand the great impact this phenomenon has on shaping the world politics. However war as a social behavior not only affects but is also deeply affected by changes in culture, technology, way of production, international environment and of course in the way we think of war.

The end of the Cold War and

the density of the non-conventional armed conflicts that followed it sparked a myriad of discussions about the changing character and nature of war both in academic and military circles.

These developments – encouraged also by the works of social scientists in their attempts to grasp the complexity of the phenomenon of globalization – lead to the questioning of the central assumptions about war that dominated the Cold War (strategic) thinking of war.

Thus the Clausewitzian mindset of war became the target of a severe critique.

Political Theory of War and “Trinitarian War” War as a sociological phenomenon is a fluid concept generating different definitions in different periods of time by different disciplines and scholars.2 However, the political philosophy of war equated with the name of Prussian theoretician Carl von Clausewitz who classically framed it as the continuation of politics by other means, has been the one that has shaped the Western strategic thinking about war for more than two hundred years. Nowadays political theory of war is studied widely in military academies, but outside the corridors of academies it is widely challenged by the new developments and

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Recent Wars

components that were absent in the Clausewitzian equation of war.

Clausewitz defined war as “an act of violence intended to compel our opponent to fulfill our will”. Accordingly war was conceived as a national, instrumental, controlled and rational political act.

For him war had to be waged only with a clear purpose in mind after weighing the costs and benefits of the instrumental use of force. In such a war, the victory would belong to the party who applied best the art of war. Clausewitz also made a distinction between the nature and the character of war. According to him while the nature of war was immutable the character of war would reflect the age it happens.3 This means that even the face of war changes due to the technology, political environment, historical context etc., its nature remains constant: like organized violence, fought for rational reasons etc.

Clausewitz’s immutability thesis rested on the assumption that three tendencies were ever present in war: basic violence, chance and uncertainty and

the attempt to use war to achieve a pur- relations were assumed with a subordipose. These tendencies corresponded nation of the latter to the former (the to three institutions: people, army and government sets objectives and army government (the state) which come to provides the means, but government be known as the “wondrous trinity”. should not interfere with the means Clausewitz also stressed the importance chosen for their achievement). And the people/army relations of balance among the were to be harmonious components of trinity.

War as a sociological so far as the people The influential hisphenomenon is a fluid torian of war Martin regarded the military concept generating van Creveld, coined service as a national different definitions the term “Trinitarduty. Moreover, here ian war” to define the the state was thought in different periods Clausewitzian mindset as the “Weberian” of time by different of war. Accordingly, rational state, enjoydisciplines and war was considered ing the monopoly of scholars. as a means to an end, legitimate violence in other words, it was within his borders. thought to occur between well orga- Thus, state was presumed to represent nized state-controlled armies, with their citizens (people) on the basis of clear political objectives in mind. Addi- a “social contract”. Here the “people” tionally, the three components of trin- appear as a meaningful unity, i.e a naity were not only assumed as balanced tion. Besides this, army was assumed but in harmony with each other. Thus, as a unitary, hierarchically organized people/state relations should conform service operating on the principles of the social contract which obligated the scientific works.4 state to protect its citizens. State/army In a nutshell, it is not difficult here EurasiaCritic July-August 2010 15

Recent Wars

to note the spirit of levée en masse (the ends, but also regulated by law. It was, nation in arms) which apparently has in the “realists” view, a normal tool for influenced the Clausewitz thinking of solving the inter-state problems in an war. It’s worth mentioning also that ac- anarchic international system.

The Clausewitzian outlook of war, cording to the Clausewitzian approach, as will be shown bewar is fought on behalf Nowadays political low, was challenged by of a nation but not by the developments rethe nation, because theory of war is war is for the armies. lated with the impact studied widely in This approach allowed of globalization on military academies, a distinction between world politics. but outside the combatants and nonThe Major Trends corridors of combatants which in in Recent Armed academies it is widely turn would make posConflicts sible the implementachallenged by the Post Cold War tion of the jus in bello new developments era has witnessed a (laws in war). On the and components shift from inter-state other hand, because that were absent in conflicts to intra-state war was deemed as the Clausewitzian ones where the fora means to political equation of war. mer is now an excepends, the possibility to tion and the latter is regulate which politibecoming the n new norm. Thus the macal ends could justify resorting ti tto war, becomin enabled the development of jus ad bel- jority of armed conflicts taking place lum (laws of war). Thus war was not today are intra-state and asymmetric merely organized violence with political (when one of the parties is non-state 16 EurasiaCritic July-August 2010

actor with poor technology opposing to a strong state with high tech) in nature.

These kinds of conflicts generally occur for the control of a state or territory, the secession of a region or the autonomy and self-determination of sub-state identity groups5 or to defend or expand a particular cultural autonomy against the globalizing pressures of Westernization, as in the case of Islamic fundamentalism.6 Broadly speaking, in the words of Ken Booth, such intra-state struggles are defined by “state collapse, extreme ethnic brutality, elite manipulation, narcissistic identity politics, historical propaganda, naked fear, religious revival, neighbour versus neighbour violence, fluid political entities, and ethnic cleansing”.7 The features above show a shift from Clausewitzian political violence to inter-ethnic brutality, which make the instrumentality of war hard to be defended.

On the other hand, the impact of globalization on diminishing the political, economical and cultural role of nation-

Recent Wars state as well as the national identities on behalf of local, ethnic and religious one, is argued to have made the “wondrous trinity” irrelevant in our age. By the same token Mary Kaldor suggests that a new category of wars, which she labels as “new wars”, has emerged since the last years of Cold War. Globalization is seen as the driving force of these conflicts, where the disintegration of states and the quest for national identity is typical in such conflicts.8 Thus Kaldor states that these “new wars” differ from the previous ones (Clausewitzian wars) in terms of their goals, methods and sources of finance. Moreover she argues that in these armed conflicts – as the wars following the dissolution of Yugoslavia have clearly showed – the traditional distinctions between war, organized crime and large-scale violations of human rights become increasingly blurred.9 According to Kaldor all these developments show clearly the erosion of the Westphalian state’s monopoly of legitimate organized violence.10 Some of the characteristics which distinguish these armed conflicts from the previous (traditional inter-state) wars are summarized below.

The distinguishing features of post Cold War armed conflicts, including the ones after 9/11, can be described in bold lines as firstly being fought not only by regular armies but also by militias, armed civilians, paramilitaries, warlords and military contractors (non-state actors) with little discipline, uncertain chains of command and with a debatable legality. Secondly, often there is a total collapse of state institutions in such conflicts.11 Third, the civilians became main targets of hostility and lastly, the high-tech is used in these conflicts generally by a powerful state from outside. As a result the distinction between public and civil combatants in these conflicts becomes quite blurred.

Thus in such cases the application of jus in bello (laws in war) becomes almost impossible reducing in minimum the protection of civilians and they who are deemed as hors de combat.

The high scale of violence and the high-tech can be considerate as two

substantial characteristics of these con- be found on RMA. The term of RMA flicts. At first glance it looks paradoxical even has its roots in the late 1070s Sothat a war waged by high-tech weapons viet Union’s strategists it become intercan cause so many civilian victims. The nationally familiar with the 1991 Gulf main reason why we call these arms as War. The role of technology in shaping high-tech weapons is because they have the war is well-known through history a high degree of targeting, precision and this was proved again in the Gulf and accuracy and this fact is supposed War, where technology as an amplifito reduce in minimum catory of power made the civil causalities possible to predict Post Cold War era has not to amplify them. easily the culmination witnessed a shift from The answer for such of war. The almost efinter-state conflicts to a contradiction can be fortless victory of US intra-state ones where found partly in the ilbacked by its superiorthe former is now an lusion created by the ity in technology sugRevolution in Military gested that the future exception and the Affairs (RMA). A operations would be latter is becoming the brief look at the USdetermined by the posnew norm. led armed conflicts sessing of high-tech would help us reveal like the guided weapthe failure that lies behind this doctrine ons and space satellites etc.12 This view as well as understand other important claimed itself also in the NATO’s Kosocharacteristics of recent conflicts. vo air campaign, where the US did not According to some scholars the roots have a simple causality in man. These of the changing character of war can events generated some debates about EurasiaCritic July-August 2010 17

Recent Wars the concept of “virtual war” dominated Another important feature of curby information, communications, weap- rent conflicts is the scale of violence ons targeting combined with media im- spread especially among the nonages.13 In the light of these facts we can combatants. Once war moved out of argue that RMA is inspired by Ameri- the battlefield, deaths took a massive can concept of war that gives priority to aspect15 encompassing also the civilthe quick battle with the possible mini- ians. Furthermore the civilians come mum of causalities. The American so- to be the main victims in intra-state ciety is not prepared to wage a lengthy wars, causing large numbers of refugees war. This view is also important to show and displaced persons16 as the case of us the close relationship between the Bosnia, Kosovo and Iraq War clearly society its culture and war doctrine. showed. While the causalities during In addition the technological superi- the conventional phase of fighting in ority has produced an Asymmetric war- Iraq War were historically low17 they esfare that can be concalated both in military sidered as a means of and civilian side with Post Cold War era has the weak (non-state the evolving of fightwitnessed a shift from actor in general) ing in residential areas. inter-state conflicts to against a sophisticatGuerrilla and terrorist intra-state ones where ed strong opponent attacks emerged as a the former is now an (state actor). All reaction against supeexception and the US-led coalitions in riority in technology Iraq, ex-Yugoslavia contributing in the escalatter is becoming the and Afghanistan prolation of dead civilians. new norm. duced an asymmetric From this point of view conflict.14 Because we can’t say that RMA the majority of conflicts today are not changed the violence or the number of a traditional state to state confronta- victims because the cases of Afghanition and because RMA emerged from stan and later the Iraq war showed the a state-centric concept of warfare, what contrary. We can conclude that those lies behind the successful military op- who use high-tech can consider war erations is a failure that consists in the “virtual” but it is anything but “virtularge number of victims both civilian al”18 for who suffer from it.19 and military, as the cases of AfghaniMaybe the most distinguishing charstan and 2003 Iraq War clearly shows. acteristic of contemporary armed con-

18 EurasiaCritic July-August 2010

flicts is the rising role of the Privatized Military Firms (PMFs) known as the phenomenon of “outsourcing of war”.

However the privatization of war is not a new phenomenon. In fact the use of modern national-armies is a relatively recent idea going back to the establishment of the levée en masse Convent by Napoleon in 23 August 1793. Before this date the non-national and mercenary nature of armies was widely accepted. For example, the most severe critique of Machiavelli in the Prince, was directed especially to the “condottierri” (14-15th century Italian mercenary). He saw them as dangerous and a kind of soldiers to whom could not be trusted for the outcomes of war, because for them was money that counted first.

However, this medieval phenomenon has returned back in contemporary battlefield in a different guise, that of PMF. The War of Iraq (2003) was the war in which the PMFs appeared in a massive density. According to the Peter Singer the War of Iraq cannot be described without mentioning about PMFs.20 It is supposed that, in this war over 60 PMF including a personnel that exceeds the number of 20.000, have participated.21 They were utilized in various operations including the ones done traditionally by national-armies as is the case of combating or tactical missions. Moreover the PMF is thought to play a positive role in overcoming some structural problems inside the military e.g the use of soldiers in the activities which are not directly linked with fighting may diminish the bellicosity of army, thus the utility of PMF in this regard is deemed as fruitful.22 Notwithstanding their utility in appearance, their legal status is not clear in the most cases. Moreover what is the most important problem with this practice is the ethic aspect of PMF. Because PMF fight for money, the end of war would mean the closing of a very profitable market for them, on the other hand the end of war is equal with the decrease of costs for the state. The latter constitutes the ethical aspect of the problem.23 The increasing role of PMF

Recent Wars shows also a divergence from the norm of national armies as defined in “wondrous trinity”.

Last but not the least is the role of media. It was absent in the equation of Clausewitz but is present in all the contemporary armed conflicts. Media today provides a close encounter with war for large public through the television screen and makes war “transparent”.

As a result the “CNN effect” entered the international relations literature.

The idea of media as a tool of propaganda is not a new one. It is believed that Napoleon once said to his generals: “Four hostile newspapers are more to be feared than a thousand bayonets”.

This expresses the strong effect played by communication and psychological tools (visual or not) in shaping the public consciousness.

As a result public opinion plays an important role in shaping the decisionmaking process, particularly in the cases of humanitarian intervention, where severe human rights violations attract a large sensitivity. But as the case of Somalia showed, the CNN effect can be double-edged, because the same public opinion that forced the decision makers in America to intervene in Somalia, after watching the dead bodies of American soldiers they changed their minds and America has to withdraw its troops.

This public sensitivity plays a crucial role in America and this is why the American “way of waging war” is based strongly on technology and on the reduction in minimum of causalities. It is been said that this public sensitivity has its roots on Vietnam syndrome. In addition the journalists are now an active part of “battlefield” shaping and even constructing the image of war for public at home.

Conclusion The study of war matters and will continue to occupy the minds of intellectuals and scholars about its current transformation in relation with the effect of globalization. From the end of 1980s onward many eminent IR scholars have stressed the irrelevance of Clausewitzian mindset of war in contemporary

era. Their views were also backed by other social scientists’ findings regarding the diminishing role of Westphalian state system as well as the ambiguity of national-identities in the contexts of a globalized world. Thus the Clausewitzian equation of war was largely challenged not only by the emergence of a myriad of non-state actors in the battlefield which were absent in his trinity, but also the rationality of war itself as a means of politics was questioned for its uncertain outcomes. These developments lead many scholars to research the causes of the metamorphosis of war as well as its potential consequences in world politics and societies, by analyzing the post-Cold War era’s armed conflicts.

The characteristics of recent conflicts selected in this article are not exhausted and can be extended far beyond to include the role of gender in war, child soldiers, terrorism and so on.

However these are deemed to expose some important and stubborn features that challenge the traditional view of “Trinitarian war” and help us to better understand the current nature of armed conflicts.

References * Hacettepe University, Departmant of International Relations, Graduate Student, k.kolasi@ gmail.com 2 Michael Sheehan, “The Changing Character of War”, in John Baylis, Steve Smith and

Patricia Owens eds., The Globalization Of World Politics: An Introduction to International Relations, 4e., (New York: Oxford University Press, 2007), p. 213.

3 Ibid.

4 Bjorn Moller, “Post-trinitarian war and the regulation of violence”, in Steffano Guzzini and Dietrich Jung eds., Contemporary Security Analyzis and Copenhagen Peace Research, (London: Routledge, 2004), p. 81-84.

5 Tamara Duffey, “United Nations Peacekeeping in the Post-Cold War World”, Frank Cass Journals, Journal Offprint, Civil Wars, Vol.1, No.3 (Autumn 1998), p. 2.

6 Sheehan, op. cit., p. 222.

7 Ken Booth, Theory of World Security, (Cambridge: Cambridge University Press, 2007) 8 Ibid., p. 221.

9 ee: Paul D. Williams “War”, in Paul D. Williams ed., Security Studies, (London: Routledge, 2008) 10 Ibid., p. 165.

11 Duffey, op. cit., p. 3.

12 Burak Çınar, “Irak Savaşı’nda, Tekonoloji-Ordu-Harekat Bağlantısı”, Stardigma Strateji Analiz e-Dersisi, Ağustos 2003, Sayı 7, p. 1.

13 Ibid., p. 218.

14 Ibid., p. 217.

15 Burak Çınar, “Savaş ve Ölüm”, Cumhuriyet-Strateji, 20 Ekim 2008.

16 Duffey, op. cit., p. 3.

17 Sheehan, op. cit., p. 218.

18 Ibid., p. 220.

19 Ibid., p. 220.

20 Cited in Haldun Yalçınkaya ve Kadir Tamer Türkeş, “Yirmi Birinci Yüzyılda Çatışma Alanlarında Görülen Yeni Unsurlar”, Güvenlik Stratejileri Dergisi, Ulusal Hakem Dergi, Haziran 2008 Yıl 4 Sayı 7, f. 77.

21 Ibid., p. 83.

22 Ibid.

23 Ibid.

EurasiaCritic July-August 2010 19

Turkey-Greece

Turkey And Greece As Problematic Neigbors-Is The Economic Crisis A Turning Point In Turkish-Greek Relations?

By Serkan Berk Karadeniz Historical Relations and the Eastern Question

I

n the eighteenth and the nineteenth centuries Ottoman Empire was a declining power due to the corruption and inefficiency of the government and the flow of Nationalism.

As the result, the people under Ottoman rule began to struggle for independence (Peacock, 1982: 216).

A result of the Ottoman decline was rising interventions by the Great Powers of Europe to the Turkish affairs. In

20 EurasiaCritic July-August 2010

the nineteenth century this Great Power intervention to the Empire became frequent and the problems arising from the situation in the Balkans was one of the main problems in European politics. These problems between Ottoman Empire and the Great Powers were called the Eastern Question.

The events which began with the 1821 Ypsilanti troubles continued with the 1822 Revolt in Morea. The Battle of Navarino and the Treaty of Edirne created even greater problems in terms of the Eastern Question. Russia, Britain

and France tried to keep their spheres of influence but also to keep each other from gaining too much influence on the declining Ottoman Empire.

As a result, these three Great Powers continued their competition over the Balkans and this led to a series of different conventions and treaties such as the Straits Convention of 184, the 1854-56 Crimean War, the 1856 Treaty of Paris and the 1878 Congress of Berlin. The Eastern Question could not be solved by any of these attempts. The only thing the Eastern Question helped was improving nationalist feelings and independence movements in the Balkans as the Balkan peoples became stronger in their independence movements because of the great support they had from the Great Powers (Peacock, 1982: 216-234).

When we look at the Greek nation and the birth of Greek Nationalism, the concept of the “other” becomes very important, and for the Greeks, the “other” are the Turks. Ethnic stereotypes are developed and reproduced in pairs, mutually on both sides of the “Us vs. Others” conceptual divide. The “Us vs. Them” polarity is connected to a particular religious and/or ethnic identity(in this case we see there are Greek-Orthodoxy and Turkish- Islam).

Greeks often name as ‘Turks’ various states and groups such as the Seljuks,

Turkey-Greece

the Ottomans, even the Albanians (Turkalvanoi). Tourkokratia refers to the “400 years of bondage” the expressions ‘invasion’, ‘slavery’ and ‘Turkish yoke’ are also used to refer to the same concept (Millas: 50).

The Development of Relations Between Republic of Turkey and Greece Because the relations between the two nations started in an unequal relationship of dominance and because the Greek ideal depended on the establishment of Byzantium the relations between the two countries were never in very friendly terms. At the end of World War I, Greek Armies tried to invade Anatolia and created problems for both sides. After the proclamation of the Turkish Republic, problems were tried to be solved by population exchange. According to the “Convention Concerning the Exchange of Greek and Turkish Populations”, which was signed

on the 30th January 1923, the govern- win their support. As a result of this dements of Greece and Turkey exchanged velopment, Greece joined the EEC the following year, unlike approximately 2 milTurkey(Ahmad, 2003: lion Greeks and Turks Problems in the 167). that was based upon Aegean Sea, the 1960s and 1970s religious identity, and future of Cyprus, also forms a tense peinvolved the Greek Orthodox citizens of riod between the two demilitarization Turkey and the Musstates regarding the of Aegean Islands, lim citizens of Greece.

Cyprus issue. Probterritorial waters and However the relalems in the Aegean air space became tions remained tense Sea, the future of Cythe most important even after the two prus, demilitarization problems between countries became of Aegean Islands, members of NATO territorial waters and the two sides and in 1952 and applied air space became the remained unsolved for EEC membership. most important probuntil today.

Turkey signed the Aslems between the two sociation Agreement sides and remained with the EEC in 1963. However, in unsolved until today.

1980, when Turkey was asked to apply European Union, Greece, for full membership at the same time as Greece, Prime Minister Süleyman Turkey and Cyprus Demirel put off the application in order Another fact was the European to calm down anti-EEC Islamists and perception of Greeks. European inEurasiaCritic July-August 2010 21

Turkey-Greece tellectuals came to see Greece as the caused the junta regime in Greece to cradle of civilization, democracy, phi- fail. losophy, drama and naturalistic forms Surrounding circumstances, Karaof art. They also saw the Greeks as the manlis who used to live in France came precursors of scientific inquiry. Ancient back to Greece and created the New Greece was systematically glorified by Democracy Party and came to power Enlightenment philosophers and the alone. Karamanlis left NATO’s military civilization of the “powing due to its passivlis” became the idol of ity to the Turkish inDue to 2009 the emerging romantitervention to Cyprus. parameters, eleven cism. Not only ancient In 1973, Karamanlis million populated Greece was considproclaimed that a full Greece’s GDP is ered as the greatest membership of the EU seen between 330 to achievement of huis the country’s new man history, but Eu“Great Idea”(Megali 350 billion dollars ropeans also tended Idea) and started in different sources. to flatter themselves Greece’s membership Turkey’s GDP on the by discovering their negotiations to the EU other hand is between own idealized cultural again in 1975. In order 600 to 800 billion ancestors in ancient to achieve it, he had to dollars but Turkey’s Greece(Tsoukalas: 8). deal with the nation’s As a result, such economy first. As a repopulation is six times Europe heavily supsult of a series of ecomore than Greece’s. ported the sovereign nomic measures, the So GDP per capita is Greek nation state, overall performance higher in Greece than would also support of the economy in Turkey.

Greece’s membership the year 1976 showed to the EU. Briefly, 6 steady progress. Folyears rule of military jjunta weakened k d lowing l i the h completion of preparations, with the revolt of the students of Ath- Greece submitted her application for ens Technical University. This also full membership of the European Ecocaused the junta to change their leader, nomic Community, the European Coal Ioannides replaced Papadopulos. In and Steel Community, and EURAthe mean time, Samson coup replacing TOM on June 12, 1975. Following her Makarios in Cyprus and the failing ef- application, the council stated that the fort to implement ENOSIS (unification negotiations to be completed within of Cyprus with Greece) lead to military two to three years. In fact it took lonintervention from Turkey to the island ger because of the Commission’s opin-

22 EurasiaCritic July-August 2010

ion that The economy of Greece was insufficiently developed. The negotiation process resulted in 1979, and The Treaty of Accession was signed in 1979.

Greece became the tenth member of the community on January 1, 1981(Koliopoulos and Thanos, 2010: 158-160).

After the end of the Cold War, in November 1993, Greek Cypriots formed a Joint Defense Doctrine with Greece following the election of President Klerides. Turkish Cypriots responded by entering into a joint defense and foreign policy program with Turkey. In May 2004, the Greek twothirds of the island became a member of the European Union as the Republic of Cyprus.

Turkey, given its apparent military superiority in the Cyprus region, has insisted on perpetuating the post-1974 partition, being the only country to have recognized the self–proclaimed Turkish Republic of Northern Cyprus (which unilaterally declared its independence in the Fall of 1983). Since then, the Turkish-Cypriot population has been prevented from reintegrating itself into the mainstream of a single and prosperous Cypriot economy(Couloumbis, 1999: 247-260).

Turkey had become an associated member of the European Community in 1964. Although the agreement foresaw a preparatory step, after which Turkey would be in a position to apply for full membership, the membership process continued longer than foreseen(Zurcher, 1997: 276). Turkey officially applied for full membership of the EC in April 1987. The EC did not reject the application totally. However, a customs’ union between Turkey and the EU was offered instead of full membership. The customs’ union were ratified in 1995. On the other hand, it did not satisfy the Turkish authorities.

However, the EU stated that negotiations for full membership would start only when the political conditions had been met. At the Helsinki summit of December 1999, the EU reaffirmed its commitment to Turkey’s future membership. At a summit in Copenhagen in 2002, EU promised to open talks, if

Turkey-Greece

Turkey provided sufficient progress on democracy, human rights and legal reforms, named as Copenhagen criteria.

In the following years, Turkey concentrated on meeting the Copenhagen criteria and began to change its legislation and even its constitution to get it. The EC published a progress report in 2004, which gave Turkey the thumbs up in December 2004, Then the negotiation process begin on 3 October 2005. Problematic and tense relations with Greece and the Cyprus issue have always been obstacles in Turkey’s EU membership process. Today there still is no final solution to Cyprus issue.

Latest Condition of Greek Economy Due to 2009 parameters, eleven million populated Greece’s GDP is seen between 330 to 350 billion dollars in different sources. Turkey’s GDP on the other hand is between 600 to 800 billion dollars but Turkey’s population is six

times more than Greece’s. So GDP per percent to 12,7 percent and unemploycapita is higher in Greece than Turkey1. ment rise to 9 percent from 73.

When we look at the distribution of Another important source of Greek the Greek economy we see that 75 per- economy is maritime business. Greece cent of the economy is has the biggest comcovered by service secmercial marine fleet.

It is possible to say tor. Agriculture’s proOther important that last developments portion is 12 percent sources of Greek show that Turkey and in total labor however economy are banking its proportion in GDP business, textile and Greece finally came to is only 3 percent2. tobacco. Regarding an understanding that Greece’s important The biggest source of could lead both to get amount of agricultural Greek economy’s infree of the paranoia population, Greece is come is tourism. This and prejudice against one of the countries shows that Greek each other and finally that benefits the most economy is directly affrom EU funds. fected by the economic agree on the subjects Greece is highly distresses through the that benefits each of dependent on oil and world. Greece was able them mutually natural gas to the to welcome eighteen other states. Greece’s million tourists in 2008 however by the effect of global econom- biggest partners in foreign trade are ic crisis this declined as 40 percent in Italy and Germany. Also a significant 2009. These developments caused the amount of foreign trade is held with rate of public borrowings to rise from 3 Holland, France, China, Russia and EurasiaCritic July-August 2010 23

Turkey-Greece nificant factor that harmed Greek economy. Between EU member states, Greece is the one that has most corruption. In the last Karamanlis administration, not only bureaucrats but also some ministers resigned because they participated in corruption. Also in an article in Der Spiegel dated 5/11/2010 and named “Is it already too late to save Greece” it is said that “On weekends, hospitals admit elderly people who require nursing care or are confused because their children bring them there so that they can take a few days of vacation”. This situation boosts the healthcare costs.

More examples like this also causes the Greek economy to suffer.

The Effects of the Crisis to the Turkish-Greek Relations

some Balkan states. USA and UK also plays a good role in Greece’s foreign trade.

Regarding these factors, highly EU dependent and tourism leaded Greek economy was fragile and its response to global developments is very sensitive. Greece failed to use the EU funds to improve its economy and could not integrate this liquidity into production cycle and social expenditure. Greece is one of the states who has excess consumption while its productive capacity is insufficient. This factor inevitably lead the Greek economy to crisis. Currently, the salaries of the civil servants are frozen and acquaintances of farmers and workers cannot be made. Also the Greek tourism industry, which was hoped to contribute to the country’s recovery, is announced to be in crisis.

24 EurasiaCritic July-August 2010

To speak the question, there are some significant factors that wasted the sources of Greece and led its economy to collapse. The main factor that stands out here is the outgoings on weaponry. Both Greece and Turkey was forced to spend a lot on weapons they did not need. This took its origin from the problematic relations of these two states. EU states also directed Greece to buy armament from them. Considering Greek economy’s dependency on EU funds this policy was nothing but cutting EU’s own throat. Another factor on military expenditure is the dog fights between Greece and Turkey over Aegean Sea. According to Can Ataklı’s (a Turkish journalist) research one F-16’s cost of one hour flight is 25 thousand dollars.

Lastly, corruption is another sig-

However the crisis is a current issue and still in progress there are a few significant developments between the two states relations.

On May 2010, Turkish Prime Minister Recep Tayyip Erdogan has made a trip to Greece with a delegation of 10 ministers and about 100 businessmen and co-chaired the first joint cabinet meeting between the two states. During the visit, Greece and Turkey signed a series of greements on areas including the economy and migration. The aim of visit for Turkey was to put aside differences and focus on areas of mutual benefit, in particular trade.

Besides, both sides gave statements regarding to huge military spending.

Theodore Pangalos, Greek deputy prime minister, said that “I honestly feel national shame each time I am forced to buy weapons we do not need.”4 Also, Egemen Bagis, the state minister handling Turkey’s EU negotiations, said that “Greece doesn’t need new tanks or missiles or submarines or fighter planes, neither does Turkey. It’s time to cut military expenditure throughout the world, but especially between Turkey and Greece. Neither Greece nor Turkey needs neither German nor French submarines.”5 Another development was the Greek move on lifting visa requirements for a week of visit to Aegean

Turkey-Greece

islands for Turkish people. The aim of this was to boost the tourism incomes and it is another opportunity for an approach between the two countries.

Instead of Conclusion-The Future of Turkish-Greek Relations It is possible to say that last developments show that Turkey and Greece finally came to an understanding that could lead both to get free of the paranoia and prejudice against each other and finally agree on the subjects that benefits each of them mutually. The crisis showed that the paranoia of a war that would never actually happen would harm no one but them. It is clear that both sides are taking concrete steps to develop the relations, especially in trade. However, anti-Turkish or antiGreek propaganda was useful for both states domestic politics in history, it is not anymore.

Greece castigated Israel in the unfortunate event took place in the Turkish aid ship rotated to Gaza in international waters. Even USA -the so called strategic partner of Turkey- did not.

This example shows how the Greeks are eager to develop the relations as well as Turkey. From this point it would be wise to keep this trend going and earn a new ally in the region for both sides.

Bibliography Couloumbis, Theodore A. (1999), ‘Greece in a Post-Cold War Environment’ in Theodoros A. Couloumbis, Thanos Veremis and Dimitrios C. Triantaphyllou, The Southeast European Yearbook 1998-99, Athens: Hellenic Foundation for European & Foreign Policy (ELIAMEP), 247260.

Peacock, H. L., A History of Modern Europe 1789-1981, Heinemann, Oxford: 1982.

Millas, Iraklis(2006) ‘Tourkokratia: History and the Image of Turks in Greek Literature’, South European Society and Politics, 11: 1, 47 — 60.

Tsoukalas, Constantine(1999) ‘European

modernity and Greek national identity’, Journal of Balkan and Near Eastern Studies, 1: 1, 7 — 14.

Ahmad, F., Turkey: The Quest for Identity, Oneworld Publications, Oxford: 2003.

John S. Koliopoulos and Thanos, M. Veremis; Modern Greece, A History since 1821, Sussex: 2010 Wiley&Blackwell, p. 158-160.

Zurcher, Erik J., Turkey: A Modern History, Tauris & Co Ltd., London: 1997, Revised Edition. http://www.avsam.org/tr/a1921.html https://www.abttf.org/html/index.php?link=d etay&id=11&arsiv=1&typ=1 http://www.unwto.org/facts/eng/pdf/barometer/UNWTO_Barom09_update_sept_en.pdf http://news.bbc.co.uk/2/hi/europe/8682390. stm http://www.todayszaman.com/tz-web/detaylar.do?load=detay&link= 205942 (Endnotes) 1 http://www.avsam.org/tr/a1921.html 2 https://www.abttf.org/html/index.php?link =detay&id=11&arsiv=1&typ=1 3 http://www.unwto.org/facts/eng/pdf/barometer/UNWTO_Barom09_update_sept_en.pdf 4 http://news.bbc.co.uk/2/hi/europe/8682390. stm 5 http://www.todayszaman.com/tz-web/detaylar.do?load=detay&link= 205942 EurasiaCritic July-August 2010 25

EU-Turkey

Negotiatios with the EU and Expectations

By Prof. Dr. Emin Carikci Çankaya University İİBF, Department of International Trade

Introduction:

W

ith the EU Commission’s green light for the beginning of negotiations towards Turkey’s full membership in the EU in the October 6, 2004 progress report, during the December 14, 2004 Copenhagen Summit it became possible for negotiations to begin on October 5, 2005. However, both the 2004 progress report and the December 17 Summit Report were full of unreasonable demands that were not required of previous candidates.

Before moving further into these discussions, information on the mean-

26 EurasiaCritic July-August 2010

ing of the negotiation process from an economic point of view, the Maastricht and Copenhagen Criteria, Types of Economical Integration and Bodies of the EU will be described, and then the EU-Turkey relationship between 1999 and 2009 will be summarized and discussions and negotiations that already began with the EU will be discussed.

France’s accusation of genocide, the possible date of full membership and some recommendations to readers will be placed in the last section. In conclusion, ideas on the stance and style that should be followed by government, civic society and private institutions’ repre-

sentatives will be offered.

The Maastricht Criteria The negotiation date was granted to Turkey because it satisfied the Copenhagen Political Criteria. For full membership, as well as success in the implementation of the political reforms, Maastricht Criteria need to be met. In this sense, Turkey happens to have accepted a 10 year standby agreement program towards its full membership goal because, the Maastricht Criteria are: - Price stability: Annual average inflation rate of any member state cannot be more than 1.5% higher than the average of three member states that has the lowest inflation rate. (such as annual inflation around 1.5%+1.5%=3%), - Public Gap: Budget gaps of member states cannot exceed 3% of that state’s GDP (Budget Gap/GDP ratio).

Due to the global crisis, this ratio has been raised to 4% in 2009. (In Turkey, this ratio was 11.2% in 2005, 7.1% in 2004, 1.7% in 2005 and 1.5% in 2008).

The 2009 program target is 4.6% due to the economic crisis.

- Public Debt : the public debt of the member state cannot exceed 60% of the state’s GDP (Public Debt/ GDP ratio). In Turkey, while this ratio dropped from 65% to 39% between 2006 and 2008 (292.2/741.8), the real problem is that especially the domestic debt stock is very short term.

- Interest Rates: Long term interest

EU-Turkey

rates cannot exceed the annual average interest rate of the three member states with the lowest inflation more than 2% (such as 6%+2%=8%).

- Stable Exchange Rate: National currencies of states that have not adopted the Euro should obey normal fluctuation margins (adjustments) that have been foreseen by the European Money Systems exchange rate mechanism, without devaluation.

The Copenhagen Criteria The Copenhagen Criteria cover 3 main topics and are prerequisites for the beginning and continuity of EU negotiations for candidate states. These are: - “Stabilizing institutions that guarantee democracy, legal order, respect for human rights and protection of minorities, - Existence of a working market economy that can adopt to the competitive pressures and market forces within the Union, - Ability to fulfill requirements of membership such as participation in political, economic and monetary union.”

Turkey-EU Relations: 1999-2009 After Turkey was granted the candidate status at the December 11, 1999 Helsinki Summit of the EU, the highest

decision making body between Turkey - the Cyprus issue is raised, although and the EU, Turkey-EU Partnership it is not related to the Copenhagen CriCouncil established 8 subcommittees teria, for adjustment of Turkey to the EU leg- there can be continuous limits on islation during the candidacy period, in common agriculture policy and regionits April 11, 2000 assembly. These com- al development issues, mittees began working on 28 of the 35 - a unanimous decision of all memtopics on June 28, 2000. However, the bers is required at the beginning and achievements of these closure of each negocommittees were limtiation on all 35 topics.

With the December ited because the neThis means that 17, 2004 decision gotiations with the there are 70 veto rights (document), the EU EU have not started on the Southern Cyat the time. With the prus issue in the negostated that Turkey December 17, 2004 tiation process. is fulfilling political decision (document), The October 3, Copenhagen Criteria the EU stated that 2005 EU Summit and and gave green light Turkey is fulfilling Negotiations: The befor the negotiations to political Copenhaginning of Turkey’s begin. However, some gen Criteria and gave negotiations with the green light for the EU was decided at the issues were raised that negotiations to begin.

EU Foreign Ministers were not applied to However, some ismeeting in Luxemprevious countries. sues were raised that bourg, on October 3, were not applied to 2005. The Negotiation previous countries. These can be sum- Framework Document publish on the marized as; same day has 3 main chapters and 23 - it states, “A long transition period amendments. The chapters are: for structural policies and agriculture, 1-Principles for Negotiation the continuation of protective measures 2-The basis of the negotiations and for free movement of people and the 3-Negotiation procedure. process of negotiations are open ended In the first chapter of the Frameand the results cannot be guaranteed.” work Document, decisions made in the - Turkey is not given a full member- December 17, 2004 Summit are given, ship date, as well as; EurasiaCritic July-August 2010 27

EU-Turkey

- conditions of continuation and 9. Financial services holding of negotiations in detail, 10. Information society and media - that the negotiations are naturally 11. Agriculture and rural developopen ended but that the final goal is full ment membership, 12. Food safety, veterinary and phy- the assimilation capacity of the tosanitary policy EU. 13. Fisheries In this context, even if Turkey ful14. Transport policy filled all requirements 15. Energy after a minimum 10 16. Taxation APD stated that year negotiation mara17. Economic and “ Turkey can be thon, the full membermonetary policy recognized by the ship date of Turkey 18. Statistics European Commission can be delayed by sug19. Social policy as a functional market gesting that the asand employment(1) similation capacity of 20. Enterprise and economy as long as it EU for Turkey is not industrial policy continues efforts for sufficient at that date.

21.

Trans-Europestability and reform, Negotiation an networks and it can cope with To p i c s ( C h a p t e r s ) : 22. Regional policy the competition The 35 topics in order and coordination of pressure and market given in the last chapstructural instruments ter of the Framework 23. Judiciary and forces in the Union in Document are: fundamental rights the medium term if 1. Free movement 24.

Justice, freeit continues to make of goods dom and security determined steps.

2. Freedom of 25. Science and removement for workers search 3. Right of establishment h and d ffree26 d i and culture 26. Education dom to provide services 27. Environment 4. Free movement of capital 28. Consumer and health protection 5. Public procurement 29. Customs union 6. Company law 30. External relations 7. Intellectual property law 31. Foreign, security and defense 8. Competition policy policy 28 EurasiaCritic July-August 2010

32. Financial control 33. Financial and budgetary provisions 34. Institutions 35. Other issues November 9th 2005 Progress Report and Accession Partnership Document (APD) The scope of Progress Reports, APD and NP’s: The EU prepares progress reports for candidate countries every year. After briefly defining relations between the union and the candidate, the report reviews a) the status of the candidate in terms of political and economic criteria for membership, b) responsibilities of membership and c) the capacity to adopt to EU legislation. The APD on the other hand, lists short and medium term political and economical criteria (EU demands) according to the latest progress reports and draws a road map for candidates.

A few months later candidate countries fulfill their commitments by publishing a National Program (NP) that contains steps and goals towards membership to the EU about how and when they will realize the demands in the APD. In addition to the statements below, the 2005 progress report and APD stated that “ Turkey can be recognized by the European Commission as a functional market economy as long as it continues efforts for stability and

EU-Turkey reform, and it can cope with the competition pressure and market forces in the Union in the medium term if it continues to make determined steps. In other words, it states that it meets one of the two main parameters of the Copenhagen criteria and that it will meet the other in the medium term. Furthermore, the APD demands that all relations with member states including Southern Cyprus should be normalized, responsibilities that rise from Partnership Agreement and Customs Union should be fulfilled in the short run, and in the transportation section of the Legislative Adoption chapter, that port and airports should be opened for South Cyprus.

The Beginning of Negotiations on June 12, 2006 and Ultimatums: Actual negotiations between Turkey and the EU began on June 12, 2006 with the temporary opening and closing of the Science and Research session, in spite of the veto threat from Cyprus Greek Administration. At the press conference following this negotiation the Minister of Foreign Affairs Abdullah Gül said, “the Cyprus issue should not contaminate Turkey-EU negotiations” and “if Greek Cyprus with its 600,000 population offers more contribution to the EU on economic, political and military issues than Turkey of 72 million, EU can exclude Turkey, choose the Greek Cyprus and we will go on our way. On June 16, 2006 at the ISO meeting Prime Minister T. Erdoğan stated, “We will not sell out Northern Cyprus.

As long as the isolation of Northern Cyprus (economic limitations) is not lifted, sea and air ports will not be open to the Greek Cyprus…if negotiations are stopped, that’s fine.” On June 20 at the parliament group meeting, the prime minister said, “The negotiations with the EU is a technical issue, it cannot be mixed with politics. Greece is trying to carry the Cyprus issue to the EU. The solution in Cyprus cannot be found in the EU. The solution of the Cyprus issue is in the UN.” The EU officials staked on the June 16, 2006 EU Summit: In the Turkey paragraph of the final declaration of the

EU Summit on June 16, 2008 in Brussels, according to the demands of the Greek Cyprus and Greece, statements and threats were made that till the end of the year, demanding that Turkish sea and air ports should be open to ships and planes with Greek flags, the CU Additional Protocol should be signed (approval of the port opening by the parliament), the reform process and implementations should be speeded up, the expansion rhythm and assimilation capacity of the EU should be considered in the summit document.

- on June 13, 2006, the negotiations were temporarily opened and closed during the Science and Research session.

- on October 12, 2006, the scanning process of the 35 topics (evaluation of Turkeys level of compliance with EU legislation) is completed.

EU-CU Compliance, Negotiations and November 2006 S. Cyprus Precondition According to EUGS Associate Secretary General Şükran Yazıcı, by November 2007 Turkey complies with EU legislation on CU at a rate of around 70%. The remaining 30% is expected to be completed in the process of membership negotiations started in October 2005. As we know, CU is merely about trading industrial goods. The negotiation process will include Agriculture

and Services as well. However on November 29, 2006 the European Commission put negotiations on hold for 8 topics (1,3,9,11,13,14,29,30) until Turkey opens its sea and air ports to South Cyprus and allows free circulation of Greek Cypriot goods in Turkey. Moreover, on December 11, 2006 The Council of Europe (Ministers of Foreign Affairs) approved the advisory decision that topics that have been opened or will be opened will not be closed until this precondition is met. Although this decision created a shock in Turkey: -the technical elaboration of Turkey’s membership and CU issues and new negotiation topics being opened at the 115th assembly of the Turkey-EU Partnership Committee on March 22, 2007 decreased the tension in TurkeyEU relations and showed that the EU process is still continuing.

Topics opened before 2009: Science and Research, temporarily opened and closed in June 2006, in 2007; - Enterprise and industrial policy, - Statistics, - Financial Control and in 2008; - Moreover, we have been invited for negotiations on Trans European networks and financial control topics.

- Consumer and Health Protection, - Intellectual Property Law and Company Law topics have been opened

EurasiaCritic July-August 2010 29

EU-Turkey for negotiation although the 2006 S. Cyprus precondition continues for closure.

EU Financial Aid Between 2006 and 2007 the EU granted a 500 million Euro credit to Turkey. In 2008 540 million Euros were allocated by the Pre Accession Investment Tool (PAIT). These credits are generally managed by the Central Finance and Contract Unit of the Undersecretariat of Treasury. The European Commission declared on February 22, 2007, that Turkey will be granted a total of 2.2 billion EUROs by the EU in the 2007-2010 period.

New Adjustment Program Minister of Foreign Affairs Assoc.

Prof. Dr. Abdullah Gül and Ali Babacan held a joint press conference on April 17, 2007 and announced the 412 page book of Turkey’s Adjustment Program to EU Legislation (2007-2013) to the Turkish public. Despite the cold attitude of Eu towards Turkey, Mr. Gül stated, “Turkey will continue its own adjustment program until 2013 including the 8 topics on hold and the road map of EU process is determined to change 200 laws.” This Adjustment Program should become official as Turkey’s National Program (NP) with some changes made by the government after the elections.

2007–2008 Progress Reports and 2008 APD Demands

31, 2008, the government responded by publishing its National Program (NP) containing its commitment to meet certain of the APD demands. Some of the economic and political demands in the 2008 APD are:

In the 2006–2008 period, especially German, French and Austrian officials repeatedly opposed Turkey’s full membership and demanded that Turkey should be granted an exclusive partner- France’s Accusation of ship. In this period and in 2008, Prime Genocide and Hypocrisy Minister Tayyip Erdoğan said, “Turkey The best answer to the French parwill not accept any alternative other liament, which ratified a law proposal than full membership and EU officials that recognizes the denial of the Arshould follow through on their 46 years menian Genocide lie as a crime (punof promises.” ishable by 1 year of On November 7, imprisonment and J. Chirac called Prime 2007, The European a 45,000 Euro fine) Minister Recep Tayyip Commission declared came from the British, Erdoğan on October Turkey’s 2007 ProgFrench and US media ress Report. Since the 14, 2006 in order to and calmed the TurkCouncil of Europe save face, apologizing ish public down to a (Ministers of foreign degree. The Financial and stating that he Affairs) were finally Times in England: will try to stop the forced to unanimousThe decision of the law from passing the ly approve the APD, French parliament is senate, is hypocrisy the exclusive partner“ diplomatic idiocy” ship demands that and a great excuse and “election expediGerman, French and to lay blame. This is ency.” The Times: By Austrian leaders saw approving the proposhypocritical because, fit for Turkey had to al, France shamed the during his visit to lose its official status.

French government Armenia two weeks The political and ecoand greatly angered ago, the same person nomical criteria listed Turkey. The Guardin EU’s APD for Turdared to state: “Turkey ian: It is hypocrisy for key was a summery has to recognize the EU to ask Turkey of the 2007 progress to modernize its laws, Armenian genocide report. On December while France is moving

in order to become a member of the EU.”

in the other direction.

Le Figaro in France: The results of the continuation of tension with Turkey might be very painful for France, who will lose 10 million Euros of public bidding. Le Soir: What France did is political ugliness and lightheadedness. It is highly probable that the proposal will be buried. The Washington Post in the US: the French parliament definitely acted ridiculously by passing this incomprehensible law on the Armenian genocide.

J. Chirac’s hypocrisy: When the French Parliament was ridiculed and insulted by global media and similar views were declared by EU officials, J. Chirac called Prime Minister Recep Tayyip Erdoğan on October 14, 2006 in

30 EurasiaCritic July-August 2010

EU-Turkey

order to save face, apologizing and stating that he will try to stop the law from passing the senate, is hypocrisy and a great excuse to lay blame. This is hypocritical because, during his visit to Armenia two weeks ago, the same person dared to state: “Turkey has to recognize Armenian genocide in order to become a member of the EU.” Since J. Chirac would lose his presidency in May 2007, this statement was meaningless and France, where Armenian genocide is state policy, could not be expected to change its stance. The French passed the Armenian Genocide law in 2001 and our outrage was put out like flash in the pan. This law has been passed in 14 countries led by Austria, Germany, Belgium, Netherlands, Sweden, Switzerland and even Argentina. The Prime Minister and Minister of Foreign Affairs declared that the French are excluded from public biddings on billion

dollar projects such as helicopters, civilian and military aircraft and energy investments. We support this. However, this decision by government officials should be continued for more than 10 years, whether the proposal passes or gets shelved. Today and in the future of our EU relations, the leaders of Turkey and the Turkish business world are responsible for following our proverbs, “Don’t burn a blanket for one flea” and “Stand up in anger, sit down in sorrow,” and develop necessary, coherent policies. Sabotaging the French companies that employ 65,000 people in Turkey, boycotting and burning French products would be cutting the branch we are sitting on and shooting ourselves in the foot, because, Turkey’s share in French exports is 1.5%, while the French share in Turkey’s export is 5.7% and import is 5.1%. It is sufficient to exclude France from public bidding for 10 years.

The EU Adventures of Other Countries England applied for membership in the EEC on August 9, 1961 and negotiations began on October 10, 1961.

However, then president of France de Gaulle vetoed the application and the continuation of negotiations on January 14, 1964. ON May 11, 1967, England, Ireland, Danmark and Norway applied for full membership to EEC together. Although General de Gaulle did not veto this time, he continued his obstruction (see Table 1). Finally, when de Gaulle resigned on April 28, 1969, negotiations with these 4 countries began on April 18, 1969, accession agreement was signed on January 22, 1972 and England, Ireland and Denmark became full members of the EEC in 1973.

Norway on the other hand, said “no” to EEC with 53% of its votes on the referEurasiaCritic July-August 2010 31

EU-Turkey

endum on September 25, 1972.

De Gaulle’s slogan “Europe belongs to Europeans” and policies against Anglo-Saxon (US and American) power caused a 12 year struggle over England’s becoming an EU member. As seen in table 1, for EEC, EC or EU membership, Greece waited 6 years (1975 – 1981), Portugal and Spain 9 years (1977 – 1986), Sweden, Finland and Austria 4 – 6 years, Central and Eastern European Countries (CEEC) and Baltic countries 9 – 10 years, Romania and Bulgaria 12 years.

However, Turkey has been waiting since April 1987, for 22 years, for accession agreement (full membership date) and full membership, as a result of the “crusader mentality” of the founding big countries!

In this sense, that bigger countries in terms of economy and population (such as England and Spain) took longer and had more difficulty becoming members. Here, Turkey’s biggest mistake was that prime ministers of the 1976-78 period, Demirel and Ecevit, did not follow the letter of advice from the EC official, Emil Noel, to the Turkish ministry of Foreign Affairs. The let32 EurasiaCritic July-August 2010

ter said, “ We are not planning to accept Greece’s application to the EC, if Turkey applies soon enough, it will be easier to reject both countries.” However, if Turkey applied to the EC after Greece, since the two countries would be evaluated together, we could have prevented Greece from joining the EC in 1981. As a result, Greece would not have been able to veto billions of dollars of grants from the EC and the EU to Turkey since 1981.

When will full membership happen?

The real reasons for EU’s unwillingness to accept Turkey in the near future are economical and about Turkey’s population potential, rather than political. The average annual population increase rate in Turkey is around 1.5%, which will lead to a population of 90 million in 2020. This way, Turkey will become the country with the largest number of representatives in EU bodies and the European Parliament. Meanwhile, the population increase rates of 27 EU countries is around 0.25%, their population is almost constant. Another concern for the Europeans is that with

full membership Turkish workers would invade EU countries, because, in recent years unemployment rates in some important EU countries reached the level of 7.5-10.7%. In fact, the unemployment rate in February 2008 is 10.7% in Belgium, 9.0% in Spain, 7.8% in Germany and 7.5% in France, very high for western standards (The Economist, April 19, 2008). In 2009 these rates are rising in all EU countries as a result of the global crisis. I would like to emphasize that, if Turkish workers gained the right to free movement in the EU 20-25 years ago, Turkey would have lost skilled labor, rather than unskilled, and this would have put Turkish industry under more stress, since it already has skilled labor force and intermediate staff problems.

Moreover, it should not be forgotten that Turkey’s loss of skilled labor would have been a kind of human capital grant to the EU, because Turkey is a very big country compared to EU countries and the financial support it will receive will be much bigger that others, this financial support seems very strenuous for EU. Together with the worry that Turkish labor force will invade EU, EU officials avoid stating these reservations

EU-Turkey and try to gain time by putting forward have a crusader mentality towards Turpolitical requirements that Turkey can- key. It has been 10 centuries since the not accept. Turkey’s accession seems to crusades. The French, Austrians and depend on Turkey’s ability to stabilize some other Europeans will not forget the economy with an inflation rate kept the 1000 year old pain of Turkey’s slap below 5%, complete its agricultural and on their faces in 10-15 years. industrial development and lower the Some Recommendations for unemployment rate to about 6%. When we reach this level of economic stability, Students and Readers Turkey’s economic burden on the EU My students and readers are rightwill fall from 8-10 billion to a few bil- fully going to ask this question: “Well, lion Euros and the population increase sir, if they won’t accept us to the EU, will fall under 1% as a result of indus- why are you defending efforts towards trialization, removing the threat posed joining the CU and EU?” My answer

by Turkey’s unemployis that Turkish indusment rate and leading trialists have been De Gaulle’s slogan to the acceptance of forced to be competi“Europe belongs Turkey as a full memtive and our products to Europeans” and ber. OF course, the reached world stanpolicies against precondition is reachdards in terms of qualAnglo-Saxon (US and ing the stage where ity and price, all due EU decisions are made American) power to the last 46 years of with rule of highest EU efforts, especially caused a 12 year vote rather than unastruggle over England’s after the CU. In the nimity. Therefore, we end, while Turkish becoming an EU need to forget about consumers are not exmember. full membership for a ploited anymore, Turlong time and focus on key reached the final reaching economic and political liti l stabilit bili d stage off iindustrialization.

Moreover, ty. In other words, full membership is in our students have the opportunity to Turkey’s hand and only possible when participate in Erasmus and other EU EU standards are reached in inflation organizations and study for 1-2 semesand unemployment (2015-2020 period). ters in EU countries where they learn Turkey’s ability to reach EU standards in economy and democracy depends on the continuation of the negotiations, because, when we think about the political life in Turkey in the last 50 years, the governments of Turkey unfortunately and generally did not conduct economic or democratic reform without IMF or EU force. The issue is not entering the EU, but reaching EU standards.

10-15 years later, when Turkey reaches EU standards in every area, it will not need to be a member of the EU. It has the right to conduct a referendum on joining the EU when the time comes.

France and Austria already decided that they would hold a referendum when it is time for Turkey’s full membership.

The ratio of the population that wants Turkey to join EU is 30% in France and 5% in Austria. These countries still

the Western outlook, work and business discipline, follow scientific developments. Some extreme nationalists in Turkey claim, “Every economic and political problem arising in Turkey is fueled by the IMF, the US and the EU,” and numb the Turkish youth with their conspiracy theories. If we believe that there are external forces behind all problems in Turkey, this would mean, “We are useless, we did not establish 17 states until today, and we did not prevail as a world power for 500 years until the beginning of the 19th century. Another meaning of this slogan is, “We are ruled by the IMF and the EU; there is no need for reading, thinking and struggle.” Dear readers, although Turkey’s export/import correspondence in total international trade in 2008 is 65.3%, this ratio is 84.8% in trade with the EU. Moreover, again in 2008, only 16.3% of out total international trade gap is with EU countries, while the remaining 83.7% is with non-EU countries.

Unfortunately, the conspiracy theorists do not talk about these facts. For more details see: Note-1: “Economic Developments” and “Relations with the EU and the Cost of the Customs Union.”

Therefore, the source of every problem is not the EU. The real solution is looking for our own shortcomings and

EurasiaCritic July-August 2010 33

EU-Turkey economic and political problems, elaborating on the roots of these problems, working very hard and doing a lot of research to find solutions.

Conclusion: In spite of Turkish and EU officials’ corresponding ultimatums, Turkey-EU relations are continuing, although slowly. The precondition for beginning negotiations for all candidates is meeting the Copenhagen political criteria. The negotiations began with Turkey because these criteria were met in 2005. If the AKP was closed, EU could have shelved relations and negotiations with the justification that the “democracy” criterion was violated.

However, it is necessary not to allow any interruptions with Turkey’s own will in this process (negotiation process), considering the gains from the 46 years of arduous struggle for the EU process and the expectations for a stronger integration with the EU in politics and economy.

In spite of the EU’s 46 years of promises, for Turkey the consequences of the EU’s sabotage of its full membership

34 EurasiaCritic July-August 2010

are: a) degrading Turkey’s international have heavy costs for both Turkey and economic credibility, b) Direct Foreign the EU. Turkey’s most important and Capital (DFC) entry will decrease, c) even the only expectation in the EU process is to reach the interest rates, exchange standards (in every rats and inflation will Turkey’s ability to field) that full memstart to increase, reach EU standards bers have reached d) the stock market in economy and today. Therefore, the will continue to fall, e) democracy depends issue is continued neespecially in the Euron the continuation gotiation with the EU asia region, Turkey’s and to gain maximum political prestige and of the negotiations, benefit in every field. weight will be harmed, because, when we Some big countries in and f) political instathink about the terms of population bility may arise in the political life in Turkey and economic power country. For the EU: in the last 50 years, have already met a) the hopes for peace the governments of great difficulty during between the Muslim the EU process. The world and Christian Turkey unfortunately shelving of negotiaworld will end, b) clash and generally did not tions by the EU is not of civilizations will conconduct economic or the end of the world. tinue, c) the EU will redemocratic reform For example, the main a dwarf political without IMF or EU membership process power against the US force. The issue is was interrupted twice and the world. In the for England and once end, it is obvious that not entering the EU, for Spain. With this in any kind of shelving the but reaching EU mind, it can be expectnegotiation process will standards. ed that Turkey will go through similar difficulties. At this point, an unemotional, calm and determined policy needs to be followed during the EU accession process. We need to point out that despite everything, the opening and closing of negotiations during the Science and Research session on June 12, 2006 and completion of the scanning process in 35 topics by October 2006, opening another 7 topics in 2007 and 2008 are all important stages in Turkey-EU relations and the ticket to the full membership train for Turkey. If negotiations are shelved by South Cyprus’s veto, Turkey should remind EU officials of their 46 years of promises and stand bye rather than getting off the train. Because, Turkey became a partner member to the European Economic Community with the full membership target with the 1963 Ankara Agreement. The introduction to the Customs Union Decision book says, “Turkey’s full membership rights reserved.” Since both agreements were approved by the member states’ parliaments at the time, Turkey’s full

EU-Turkey

membership has been promised by Turkey and the EU nations. In fact, during her visit to Turkey on October 6, 2006, the German Prime Minister Angela Merkel, daughter of a priest from East Germany, was obliged to state, “Although I support Exclusive Partnership for Turkey, due to pacta sunt servanda, the promises made to Turkey by the EU will be kept.”

Eventually, EU countries will prevent small countries like Greek Cyprus, with its population of 600,000 and Malta, with its 500,000, from having the same rights and powers as giants like England and Germany, the EU will not be South Cyprus’s puppet, and TurkeyEU relations and negotiations will stay on course. Supporter groups in the EU see Turkey as strategic, some are impartial, and we have opponents (Christian Democrats, France and Germany) and abusers (Greek Cyprus and Greece trying to pressure Turkey using the EU).

Right now Turkey’s task is to put the 9th Democratization Package in effect

and to empower governments and EU officials that are friends of Turkey and Turks. In the end, Turkey-EU negotiations must continue, because commercial partnerships and Free Trade Agreements with the US, Russia, Turkic Republics and Far Eastern countries, rather than EU relations, is not an alternative to commercial and economic relations with the EU, but complimentary measures. 14 years after and 40 years before the CU, more than 40% of Turkeys international trade was with today’s EU countries. Today the EU share in our major industrial goods exports such as automobiles, refrigerators, televisions and ready to wear clothing is in the 75-80% range and 48% of our total exports in 2008 went to EU countries.

Additionally, Turkey-EU relations are not only a commercial issue, but one that brings standards and discipline to 35 negotiation topics including industry, agriculture and service sectors. (For more details see: Note-1: “Economic Developments” and “Relations with

the EU and the Cost of the Customs Union.”).

To summarize: Since EU decisions are made unanimously, in order to reach the targets above, without focusing too much on full membership, the government needs to adopt a more decisive, calmer and more coherent stance towards the EU and develop brave and more active implementations in terms of economical policies, while every section of Turkish society should support the current and future governments on the EU path. (For further information see Note-1).

References Note-1: Prof. Dr. Emin Çarıkcı’s articles: 1“Economy Advice for Students,” 2- “Economic Developments in Turkey: 2007-2009 (revised quarterly in January, April, July and October)’, 3- “Relations with the EU and the Cost of the CU,” 4- “Negotiations with the EU and Expectations’ and 5- “Economic developments in Turkic Republics: 1980-2006,” more than 45 pages, are published on the author’s new Çankaya University web page. See: http://carikci.cankaya.edu.tr EurasiaCritic July-August 2010 35

Special Report

TURKISH FINANCIAL SERVICES INDUSTRY REPORT 1. Executive Summary

I

nternational financial markets were at the centre of the crisis in 2008, leading to total financial sector losses estimated at US$ 1,700 bn1, but conditions have stabilised and then improved during 2009. Although the outlook globally remains uncertain in 2010, the financial crisis was clearly averted by the guarantees and rescue packages implemented in the US and various other major economies. In Turkey there was a sharp liquidity squeeze in the final months of 2008 in parallel with global conditions, but no financial institutions collapsed or needed rescue, and no emergency package was required for the sector.

This good financial performance may be partly attributable to the fact that the financial sectors of emerging economies generally (with some possible exceptions in Eastern Europe) appear to have suffered less than the highly developed markets such as the US and UK. However, another factor

36 EurasiaCritic July-August 2010

is that Turkey’s banking system went through its own deep crisis in 2001 and emerged from that with strengthened regulation and internal control systems, good capital adequacy and more controlled risk-taking. Turkish economic growth over the next seven years helped to further strengthen banks’ balance sheets, leaving them well placed to face the recent global difficulties.

Emerging markets experienced a faster recovery than developed economies. Turkey’s ISE100 index grew by 84.1% in US dollar terms during the first 9 months of 2009 realizing the second highest growth performance after the Brazilian stock market (104.4%).1 The asset size of the Turkish financial services sector is TL 1,007 billion (approximately US$ 675 billion) as of September 2009.1 The financial services sector in total grew with a CAGR of 20.9% between 2004 and 2008; the banking sector achieved a CAGR of 23.6% and the insurance sector 28.2%.

There are 49 banks in Turkey as of June 2009 comprising 32 commercial

banks, 13 development and investment banks and 4 participation banks with a total employment of 171,255 and 8,851 branches.

In 2008, total assets of the banking system reached US$ 465 billion, which constituted 77% of GDP, up from 57% in 2002. In the same period, total shareholders’ equity increased from US$ 16 billion to US$ 54 billion. In line with the increase in equity, the average capital adequacy ratio reached 19.4% in the first half of 20092, which is safely above most European countries and the recommended minimum level of 8% under Basel II norms.

The ratio of loans to total assets rose rapidly from 27% to 52% from 2002 to 2006. Consumer loans and credit card balances became important for the first time. In the same period, the ratio of government securities to total assets decreased from 40% to 28% suggesting an increasing focus on core banking activities and reduced “crowding out” by government borrowing. The loan to deposit ratio has reached 81% in 2008, up from 40% in 2002, which is the highest level in Turkish banking history.

In addition to the improvements in size and profitability, the Banking Regulation and Supervision Authority (BDDK) was established on 23 June 1999 as an independent financial authority. One major role of the BDDK has been to align Turkish banking regulations with international norms and ensure compliance with international financial reporting standards.

Special Report The Turkish insurance market is significantly behind the Europe in terms of market size and share in GDP. Per capita premium production edged up from US$ 64 in 2004 to US$ 126 in 2008, but still remains lower than other comparable countries, such as Poland (US$ 643) and Hungary (US$ 501).3 The traditional causes of low premiums per head in Turkey have been low per capita income and high inflation. However, the increasing level of per capita income and reduced inflation should allow substantial growth of the Turkish insurance market and renders the industry attractive to new entrants.

2. Sector Overview 2.1 Global Sector The international financial crisis, sparked by US sub-prime mortgages in 2007 and turning into a global economic recession, appears to have been conquered by the second quarter of 2009. Following the monetary and fiscal policy initiatives taken by many governments, international systematic risk has been substantially reduced and a tentative recovery began. Economic growth in developed countries, the lessening of the crisis- level risk premiums in financial markets, the stabilisation of banks and upturn in stock exchange indices have all been signs of recovery.

In 2008, various equity markets suffered substantial losses succeeded by a recovery in the first months of 2009 which continued to strengthen until the present. Emerging markets experienced a faster recovery than developed

economies. Turkey’s ISE100 index grew second quarter of 2009 signal the exby 84.1% in USD terms during the first pected recovery in their position, they 9 months of 2009 realizing the second are expected to continue to face many highest growth performance after the problems. Most serious of these in the Brazilian stock market (104.4%).4 short term is likely to be increased loan Total lending worldwide peaked at losses, and losses on investments, stemUS$ 80,900 bn in 2007 and then is es- ming from the global recession. The IMF forecasts that timated to have deworldwide bank losses creased to US$ 73,900 Turkey’s ISE100 will reach US$ 2,800 bn in 2009. Parallel index grew by 84.1% bn by the end of 2010.6 with the economic in USD terms during recovery in 2010, toMedium term exthe first 9 months of tal loans by financial pectations are lower 2009 realizing the industry are expected profit margins resultto rise gradually and ing from stricter core second highest growth reach US$ 108,500 bn capital rules, limits on performance after the in 2014, representing Brazilian stock market leverage, tighter polic146% of global GDP.5 ing of mortgage lend(104.4%).

By December 2009, ing, and constrained most banks in develmarkets in formerly oped countries had recovered d to a stable bl fi bl areas such as over-the- counprofitable and profitable position after incurring ter (OTC) derivatives. severe losses totalling more than US$ In the long run the financial services 1,700 bn.6 In the meantime, emerging industry, mainly banks, might become markets, apart from a few countries in less significant to the overall economy, Central and Eastern Europe, continued losing share in national economic outto steer clear of the crisis. Although im- put and employment.6 proving share prices of banks since the US banks were the institutions most affected by the financial crisis. By early December 2009, write-downs and losses taken by the lenders in Americas (mainly in the USA), Europe and Asia are estimated to have totalled US$ 666bn, US$ 520bn and US$ 41bn respectively.6 According to the IMF, losses in different regions of the world during the period 2007-2010 will be as follows: • United States of America – US$ 1,030 bn (60% of which taken by mid2009) • Europe (inside and outside the euro area) – US$ 1,620 bn o Euro Area – US$ 814 bn (45% of EurasiaCritic July-August 2010 37

Special Report which taken by mid-2009) o United Kingdom – US$ 604 bn (40% of which taken by mid-2009) o Nordic and Swiss Region – US$ 201bn (40% of which taken by mid2009) • Asia – US$ 166bn (25% of which taken by mid-2009) Insurance companies have also suffered by the global economic downturn, albeit not as much as the banks. The insurance sector was mainly hit by two major factors during the financial crisis: - Fall in stocks and corporate bonds in insurers’ investment portfolios, and -Decreased demand for life and general insurance coverage from businesses and households.

Although corporate bond and stock prices started to recover after March 2009, they have not reached their precrisis levels. Global insurance premiums (life and non-life) totalled US$ 4,200 bn in 2008 with a negative real growth rate of 2.0% compared to 2007.7 Industrialised countries premium generation, which accounted for 87.9% of the total market, dropped by 3.4% in real terms in 2008. On the other hand, emerging markets premiums, including Turkey’s, realised double-digit growth and rose by an inflation-adjusted 11.1% in the same period.7 Insurance companies came through the financial turmoil in better shape than banks. Insurers’ losses make up 13.7% of the total US$ 1,700 bn losses taken by financial institutions from the beginning of the crisis until December 2009. The US accounted for 82% of

38 EurasiaCritic July-August 2010

total insurers’ losses while Europe its amounted to US$ 382.1 billion in and Asia have less contribution with 2008. Since the loans will tend to grow 17% and 1%, respectively. According to faster, the Turkish financial sector may IMF estimates, insurers will take losses need further international funding. The of US$ 218bn on US assets, US$ 75bn main Turkish banks have been frequent on European assets and US$ 8bn on customers for international syndicated loans.

Asian assets in the period 2007-2010.8 2.2 Domestic Sector 2.2.2 Banking Sector 2.2.1 Overview There are 49 banks which operate in The size of the financial services sec- Turkey, as of September 2009. Due to tor in the third quarter of 2009 had in- the financial crisis the number of percreased by 7.6% compared to the previ- sonnel slightly decreased, but only by ous quarter and amounted to TL 1,007 0.2% compared to 2008. The number of billion. The financial employees who work services sector grew in the banking secAlthough corporate in total by a CAGR tor was 182,226 as of bond and stock prices of 20.9% between September 2009. The started to recover 2004 and 2008, includincrease in number of after March 2009, ing the banking secbranches is not as rapthey have not reached tor growing by 23.6% id as before: the numtheir pre-crisis levels.

CAGR and the insurber of branches grew ance sector by 28.2%. by 14.6% in 2008 comGlobal insurance The banking sector pared to 2007, while premiums (life and has a share of 79.3% it grew by only 1.3% non-life) totalled US$ within the total finanbetween 2008 and Sep4,200 bn in 2008 with cial sector. tember 2009. a negative real growth The ratio of finanThe financial weakrate of 2.0% compared cial assets to GDP ness of the banking was still only 134% sector before 2001 led to 2007. for Turkey in 2008. to a major financial This rate is very low when 2001. This crisis had several h compared d tto crisis i i iin 2001 other developed and some developing underlying reasons. The Turkish lira excountries, which signals future growth change rate was pegged in line with an potential. anti-inflation program agreed with the According to the Economist Intelli- IMF. This encouraged Turkish banks to gence Unit, the total loan size grew by a increase their short-term external debt CAGR of 30.4% while the total deposit (in foreign currencies) and to make exsize grew by a CAGR of 16.0% between cessive purchases of treasury bonds and 2004 and 2008. Total loans amounted bills (in Turkish Lira) in order to obtain to US$ 239.6 billion and total depos- high rates of return. Thus increasingly large short foreign currency positions were built up by some banks and other entities. But the Turkish Lira became increasingly overvalued during 2000 and huge capital outflows occurred when the sustainability of the exchange rate came into question. Overnight interest rates reached several thousand percent at the worst moments of the crisis, and a sharp devaluation resulted when the pegged exchange rate system was abandoned. The devaluation caused losses to the banks and others, the Treasury was thought to be at risk of default on its debt (though it did not default) and

Special Report

2001 GDP fell by 7.6% which caused increased loan losses. However, the devaluation boosted exports and by 2002 the economy had started to recover, helped by political stability after the November 2002 elections.

Banking regulation and control have greatly improved since the 2001 crisis with the establishment of the Banking Regulation and Supervisory Agency (BDDK). The BDDK aligned the Turkish banking regulations with international regulations on the transparency of balance sheets and compliance with international financial reporting standards. In this framework, Turkey had started to establish the infrastructural elements of the new Basel Capital Accord (Basel-II) in 2002. A ceiling of 20% was set for the net general foreign currency position to equity of the banks – and properly enforced. Minimum capital adequacy requirements of 8% were similarly enforced. Banks that were unable to comply with these requirements were taken over by the Savings and Deposit Insurance Fund (TMSF). Also the 100% state guarantee on deposits, introduced during an earlier crisis in 1994, was lowered to TL 50,000.

Capital adequacy ratios (CAR) remain well above hose of banks in many European countries and the recommended minimum level of 8% under Basel II norms. Although riskweighted assets have risen by 5.9% in 2009 compared to 2008, the increase of 17.9% in the regulatory capital raised the capital adequacy ratio of the banking sector from 18% in 2008 to 20% in September 2009.9

Recognising the importance of maintaining a strong capital structure in the global crisis, the BDDK made the distribution of 2008 bank profits subject to permission. Free capital percentage of the sector indicates that 79.4% of the equity is used in the core banking activities. The ROA and ROE which are key profitability indicators of the sector have been increasing in 2009. Net income grew by 17.0% as of September 2009 compared with 2008 mainly due to the increased interest rate spread, and also larger foreign exchange and capital market transaction gains. This improvement in profitability has come despite rising loan loss provisions.

The total asset size of the banking sector has reached TL 798.4 billion as of September 2009. The biggest item within total assets is the loans which constitutes 47.1% as of September 2009. Banks were rather conservative in lending due to increased credit risks. The share of loans to the total assets decreased to 47.1% in September 2009, from 50.2%

in 2008. Besides, there has been a rising demand for government securities. The share of government securities in total assets increased to 30.2% in September 2009, from 26.5% in 2008, after having fallen for years. Liquid assets, which are composed of cash and receivables from banks, TCMB and money market, have increased by 67.8% from 2006 and amounted to TL 101 billion as of September 2009.

Deposits are the biggest item within total liabilities and equity, constituting 61.2% of total liabilities and equity as of September 2009. The two other most important items among the total liabilities are the loans received from foreign banks and the funds raised through repo transactions. Debts to foreign banks decreased since syndication and securitization credit extensions were less accessible. The total of syndication and securitization credits declined from TL 26.4 billion in 2007 to TL 20.1 billion in September 2009. 10 Equity rose to13.2% of total liabilities and equity in EurasiaCritic July-August 2010 39

Special Report September 2009 from 11.8% in 2008, due to the higher profits, increases in paid capital and retention of profits.

The total loan volume reached TL 375.7 billion as of September 2009, representing growth of 71.6% from 2006 to September 2009. SME loans contracted by 3.3% in September 2009 compared to 2008, due to the tighter credit conditions and lower demand. Also the share of SME loans within total loans shrank from 27.2% in 2006, to 21.9% in September 2009. SMEs that were still eligible for credit often had lower demand for loans because of slowing customer demand for their products. Other SMEs with lower creditworthiness effectively lost their access to loans because of tighter loan approval criteria by banks.

SMEs are believed very important for the country’s economic development so their decreased borrowings may be a negative signal for the macroeconomic outlook. On the other hand, the share of corporate loans within total loans reached 45.3% in September 2009, from 41.2% in 2006.

Personal loans include the total consumer loans and total credit card loans. Personal loans constitute 32.8% of total loans as of September 2009 and increased by 4.9% compared to 2008.

This rise in personal loan demand is related to the decrease in personal loan interest rates and expectations for recovery in economic conditions. Besides, one-off tax reductions especially on real estate, durable goods and automobile purchases that were granted for a temporary period during 2009 encouraged personal loan demand.

The total of housing, automobile, general purpose and other loans constitute consumer loans. Housing credit is expected to grow following the approval of the Mortgage Law in 2007 that enabled banks to extend mortgage loans to consumers. The decreasing interest rates on housing, especially after August 2009, enhanced demand for housing loans. Housing loans grew by 78.2% in September 2009 compared to 2006 (but from a lower base than in many other countries) while automobile loans contracted by 32.3% in the same period.

40 EurasiaCritic July-August 2010

Automobile loans have dropped and not recovered despite the government succeeding in maintaining the total volume of automobile purchases through substantial temporary tax incentives.

General purpose loans are borrowed for durable and semi-durable consumer goods, education, marriage and health purposes. These loans grew by 130.8% in September 2009, when compared with 2006.11 The ratio of NPLs to gross loans had decreased from 4.8% in 2005 to 3.6% in 2008. However the difficult economic conditions affected loan repayments and the NPL ratio started to increase, reaching 5.3% as of 30 September 2009.

Further increases may well occur. According to the data of the Interbank Card Centre, there were 43.9 million credit cards and 61.6 million debit cards as of June 2009.12 Turkey has become the third largest credit card market in Europe, following the UK and Spain in terms of number of cards and tenth in terms of the money spent through credit cards. Credit card loans and non-performing loans have been rising continuously (unemployment has also been rising) which may pose a significant credit risk for the banks. The Central Bank reported a sharp increase in credit-card balances incurring interest charges and defaults on credit-card.

Deposits remain the main funding source for the banking industry.

The total volume of deposits grew by 37.0% compared to 2007 and reached TL 488.9 billion as of September 2009.

The major item within the total deposits

is saving deposits which have a share of 58.4% of total deposits as of September 2009.13 Public institution deposits have significantly increased by 40.4% in September 2009 when compared with 2008.

65% of total deposits were denominated in TL and 35% in foreign currencies.

There is a long history of depositors wishing to keep deposits in foreign currencies as a hedge against inflation; the ratio of foreign currency deposits was higher in the past when Turkish Lira inflation rates were far higher. Customers can freely convert between currencies.

The average maturity of deposits is 2.2 months for TL denominated deposits, 2.7 months for foreign currency denominated deposits.14 The IT systems of Turkish banks are mostly very modern, with widely used internet banking facilities.

2.2.3 Insurance Sector The Turkish insurance market accounted for 0.2% of the global and 1.8% of the emerging markets total in 2008 is significantly behind Europe in terms of market size. Per capita premium production edged up from US$ 64 in 2004 to US$ 126 in 2008, but still remains lower than other comparable countries in 2008, such as Poland (US$ 643) and Hungary (US$ 501).15 The major factors in low premiums per head in Turkey have traditionally been low levels of personal income and a highly inflationary economic environment.

Thus the increasing level of per capita income and decreased inflation create a high catch-up growth potential for the Turkish insurance market and makes it

Special Report attractive to new entrants.

November 2008 which signals a recovTotal gross premium generation in ery with the easing of the financial crisis Turkey reached TL 11,780 mn in 2008. and expansion in the economy.15 When looking at January to November The Accident branch which acpremium generation, an estimated neg- counts for the largest share of total ative real growth rate of 0.9% can be non-life premiums witnessed double considered as a recovery indication con- digit growth rates from 2003 to 2007 but sidering that the first quarter of 2009 premiums fell by 7.6% in 2008.15 This had shown negative growth of 7.3% in drop in the accident branch was mainly real terms. Parallel to attributable to weak the decrease in insurcar sales. FurtherThere are 49 banks ance demand, insurmore, the non-renewal that operate in Turkey. ers applied price cuts of some existing insurThere are 17 global and this increased the ance policies and price capital deposit banks, level of competition in cuts by insurers also 13 development and 2009. Price competiled to lower premium tion mainly in non-life production in 2008. investment banks, 11 branches, which comThe premium genprivate deposit banks, prised 86.6% of total eration in accident 4 participation banks, premium production branch was somewhat 3 state deposit banks in 2008, reduced prepositively affected by and 1 bank under mium income growth the substantial reducthe management of rates in the Turkish tion of the Special insurance industry.

Consumption Tax the TMSF. Currently, However, before the on car purchases in there are 17 banks in crisis total insurance March-June 2009 and Turkey whose foreign premium production a more limited reduccapital ratio is more in Turkey had grown tion in July- Septemthan 50%. ber. by a CAGR of 18.3% The insurance infrom 2003 to 2008 dustry, especially the non-life sector, (Non-life: 20.3% and Life: if 88.8%).

8%) 15 d i The number of policies issued in was hit by low technical profitability at 2008 decreased by 4.1% compared to the end of 2008 and the first quarter of 2007 mainly due to the life branches. 2009 mainly due to increased claim payCompulsory traffic insurance accounted ments in line with the global economic for 35% of total 30.2 million of policies downturn and price competition. Life in 2008. As of November 2009, the num- insurance profitability has overtaken ber of policies issued is only 1.1% below non-life profitability by the end of 2008 the total number of policies issued as of and continued to remain above it.

Legal protection and personal accident which contribute to 0.3% and 4.6% of total non-life insurance premiums, respectively, are the most profitable branches of the sector with technical profit margins of 65.8% and 46.3% in 2008, respectively.16 Agriculture, credit and accident (including compulsory traffic) insurances all showed overall technical losses for 2008. Credit insurance premiums rose with the introduction and development of the mortgage market in Turkey. Most banks require credit insurance from their customers before granting a mortgage loan. However, due to the economic crisis and increased claims credit line profitability decreased from 6.9% in 2004 to negative 37.6% in 2008.16 Increase in claims accompanied with low premiums as result of cheap pricing have also resulted in higher loss ratios and low technical profits for the two major branches of the industry, accident and traffic.

On Oct. 7, 2001 the law no. 4632 on Individual Pension Savings and Investment System came into force, which is complementary to the state social security system on the basis of voluntary participation and the defined contribution principle. After the law and some other legislation that strengthens the legal foundations of the system, the Turkish Individual Pension System commenced on October 27, 2003 with the commencement of the operations of six pension companies.

As of December 2009 the total number of contracts written in individual pension system totalled 2.20 million representing a CAGR of 46% since 2004. In the same year, total contributions increased by a CAGR of 90% and reached TL 7,049mn.17 The rate of growth has been impressive but profitability has been negatively affected by relatively high lapse rates among policies.

At present, the Turkish Individual Pension System is based on voluntary participation. In the future, the system might become compulsory.

2.2.4 Leasing Sector There are 48 leasing companies opEurasiaCritic July-August 2010 41

Special Report erating in Turkey with 1,316 employees as of September 2009. After a rapid growth stage between 2006 and 2008, recording a CAGR of 27.9%, leasing receivables started to shrink, levelling at TL 11.3 billion as of September 2009, down by 18.7% from TL 13.9 billion in December 2008. The amount of NPLs has climbed to TL 1.5 billion, up by 53.5% in the same period.18 Leasing volume has decreased considerably both in monetary and quantity terms since 2007 mainly due to a sudden decision of the Turkish Ministry of Finance to increase the VAT on leasing transactions from 1% to 18% at the beginning of 2008. The low level of VAT had been a major driver behind the sector’s growth between 1998 and 2007 at a CAGR of 35.4%.19 Such an increase in VAT, combined with the worsened economic conditions observed throughout the globe, put a lot of pressure on the Turkish leasing sector. This negative effect was partly compensated by a decrease in VAT to 8% for agricultural machines as well as some types of construction and production machinery.

The current Leasing Law (No: 3226) governs only financial leasing but there is a new leasing law under development which aims to achieve three main objectives: a) Safeguarding the positive aspects already inherent in the existing law No 3226; b) Creating new growth opportunities by introducing operating leasing as the other main pillar of leasing and authorising sale and leaseback, subleasing and software leasing transactions; and c) Establishing legal certainty by introducing clauses to protect lessors’ recovery rights.

The share of leasing in private sector investments in the first nine months of 2009 is around 3.47% 20, which is very low compared to the EU average of 20% and the US average of 30%. Given this growth potential and the improvements expected with the new law, the outlook for the leasing sector is still positive.

2.2.5 Factoring Sector 42 EurasiaCritic July-August 2010

There are 75 factoring companies ment of the TMSF. Currently, there are operating in Turkey with 2,769 employ- 17 banks in Turkey whose foreign capiees as of September 2009.21 A majority tal ratio is more than 50%. The private of these companies are subsidiaries of banks are often subsidiaries of major banks. conglomerates in Turkey. Turkey’s largThe sector experienced very fast est bank according to asset size is Ziraat growth between 2002 and 2007 record- Bank which is state-owned. Its main ing a CAGR of 36.9% in factoring vol- competitors are Iş Bank, Garanti Bank, ume, reaching US$ 26.9 billion. In 2008, Akbank and Yapı Kredi Bank. due to the worsened economic condiTop 15 insurance companies hold a tions observed globally, factoring vol- market share of 77.6% based on preume contracted by 1.6%. miums written. Several leading Turkish The top 3 industries textile, con- insurance companies are subsidiaries of struction, and automotive, account for banks. There are 33 foreign insurance approximately 33% of total factoring companies in the sector as of Decemvolume. These three ber 31, 2008 holding industries are among 48.5% of the total During the last five Turkey’s leading excapital and contributyears there has been a porters, which undering 49.3% of the total major FDI inflow into lines the importance premium production. the Turkish finance of factoring in exports.

2.3 Past M&A Acindustry, largely in The promising outtivities look for Turkish exBelow is a list of banks but also into ports should prove an major M&A transacinsurance. This inflow important driver for tions by foreign inis expected to continue Turkish factoring comvestors in the Turkish in other areas of the panies. In addition to finance industry over industry, such as exports, the following the last decade. leasing, factoring, asset trends are expected to 2.4 Sector Outlook management, etc. In shape the outlook of Although the fithe sector: nancial sector has been addition, privatization • The new law: A affected by global ecoof the three state new factoring law is nomic conditions and banks Vakıfbank, under development the contraction of the Halkbank and Ziraat (same as the leasing Turkish economy in Bank may be again put law). This law will bet2008 and 2009, Turkon the agenda. ter define the legal ish banks have been framework and is exless affected by the pected to improve the functioning off currentt recession f ti i i than many European the sector. banks as a result of the sound banking • Consolidation: During the last system strengthened and improved afdecade, in line with decreasing infla- ter the 2001 crisis. With economic retion, the margins of factoring compa- covery, it is expected that the financial nies were squeezed, leading to consoli- sector will continue its growth.22 dation in the sector through mergers Executives of four major banks in and acquisitions. This trend is expected Turkey, Garanti Bank, Iş Bank, Yapı to continue with an increasing FDI in- Kredi Bank and TEB, expect the Turkflow. ish economy to be the fastest growing 2.2.6 Main Players economy in the world after South KoThere are 49 banks that operate in rea in 2010.23 The General Managers Turkey. There are 17 global capital de- further indicate that the current loan to posit banks, 13 development and invest- deposit ratio of 82% is close to its highment banks, 11 private deposit banks, est level in history. With the recent eco4 participation banks, 3 state deposit nomic downturn, banks have become banks and 1 bank under the manage- more conservative in credit conditions,

Special Report however it has been pointed out that the weak demand is the leading cause of the reduction in lending.

Demand for lending is expected to increase due to a recovery in GDP growth, declining interest rates and inflation. The Central Bank of Turkey is expected to achieve its official inflation target and will further reduce the interest rates in 2010 onwards.24 These assumptions lead to an expected CAGR of 11% between 2009 – 2013. The expected increase in housing credits is expected to be an important factor for the future growth as a result of the mortgage law which facilitates longer maturities and tax advantages.

The banking sector has started to focus more on core banking activities such as lending. The weight of loans has increased significantly after 2007 and is expected to reach 60% in 2012 as result of the expected increase in demaind.

Net interest income of the Turkish Banking Sector is expected to exceed US$ 30 billion in 2012; however margins on loans and deposits are expected to decline as a result of the expected reduction in the interest rates, as presented below.

During the last five years there has been a major FDI inflow into the Turkish finance industry, largely in banks but also into insurance. This inflow is expected to continue in other areas of the industry, such as leasing, factoring, asset management, etc. In addition, privatization of the three state banks VakÄąfbank, Halkbank and Ziraat Bank may be again put on the agenda. In the current fragile economic environment investor appetite may not be sufficient and so privatization of these state banks with their large scale may not be feasible in the short run, but is expected in the medium or long term.

Non-life insurance sector projections are based on GDP and penetration. Non-life insurance premiums are expected to reach TL 32,152 million by 2013. Life premium projections are based on population and density insurance premiums per capita). Life premiums are expected to remain steady between 2009 and 2013.25

References 1 The Banking Regulation and Supervision Agency (BDDK), Financial Markets, 2009 2 The Banking Regulation and Supervision Agency (BDDK), The Banking Sector Outlook, 2009 3 TSRSB (The Association of the Insurance and Reinsurance Companies of Turkey) 4 BDDK, Financial Markets Report, September 2009 Economist Intelligence Unit, December 2009 6 Economist Intelligence Unit, December 2009 7 Swiss Re, 2009 8 Economist Intelligence Unit, December 2009 9 The Banking Regulation and Supervision Agency (BDDK), The Banking Sector Outlook, 2009 10 The Banking Regulation and Supervision Agency (BDDK), Financial Markets, 2009 11 The Banking Regulation and Supervision Agency (BDDK), Financial Markets, 2009 12 The Banks Association of Turkey (TBB), The banking Sector in Turkey, 2009 13 The Banking Regulation and Supervision Agency (BDDK), Financial Markets, 2009 14 The Banks Association of Turkey (TBB), The banking Sector in Turkey, 2009 15 TSRSB (The Association of the Insurance and Reinsurance Companies of Turkey) 16 TSRSB (The Association of the Insurance and Reinsurance Companies of Turkey) 17 EGM (Pension Monitoring Center) 18 Financial Markets Report, BDDK, Sep-

tember 2009 19 FIDER (Turkish Leasing Association), 2009 20 FIDER (Turkish Leasing Association), 2009 21 Financial Markets Report, BDDK, September 2009 22 Economist Intelligence Unit 23 CNBC-E Turkish Banking Sector 2010 Outlook of the Bankers 24 Economist Intelligence Unit 25 Business Monitor International (BMI), Turkey Insurance Report, 2009 ABBREVIATIONS ASEAN Association of Southeast Asian Nations CAGR Compound Annual Growth Rate EU European Union EUR Euro FDI Foreign Direct Investment G7 France, Germany, Italy, Japan, United Kingdom, United States and Canada GDP Gross Domestic Product IMF International Monetary Fund ISPAT Republic of Turkey Prime Ministry Investment Support and Promotion Agency MSCI Morgan Stanley Capital Index NAFTA North American Free Trade Agreement NPL Non-Performing Loan OECD Organization for Economic Co-Operation and Development TL Turkish Lira UK United Kingdom USA United States of America US$ US Dollars EurasiaCritic July-August 2010 43

Russia

Russian Answer to Terrorism

By Vladimir Karyakin Independent Expert in Public Security

T

he 30th of March 2010 in Moscow has been declared the day of mourning. Thousands of Muscovites have come this day to stations of capital underground to light candles and lay on the flowers in memory of victims of terrorism. These morning hours’ explosions have been made by women, the natives of the Northern Caucasus. As it clarified later, it was hexogen that was used as an explosive base for charges. Capacities of these charges were 4 and 2 kg. In both cases these charges have been filled by elements of chopped steel rods and bolts.

Some days later there were several more acts of terrorism in Dagestan and

44 EurasiaCritic July-August 2010

Ingushetia.

It is probable, that splash in activity of terrorists underground was its answer to successful operations of the Russian special services on the Northern Caucasus in the end of 2009 as a result of which the ideologist of terrorism in the South of Russia Said Buryatsky and the leader of the Northern Caucasus wachhabits underground Anzor Astemirov were killed.

In total during all operations in 2009 about 20 insurgents were killed. The terrorist underground which, despite of heavy tolls, continues to operate, has decided to show that war proceeds, and nobody in Russia can feel safe. At the

same time Russian authorities are declaring that it isn’t war with Islam, but only with its radical elements that represent the menace to public security.

However here we must notice that not only wachhabits act on terrorist front.

During the last years several terrorist acts were accomplished be Russian neonazists whose underground isn’t studied yet, but also represent the danger for internal stability.

It is necessary to note that the problem of terrorism is actual not only for Russia. The terrorism in its various forms has turned us to one of the most stubborn problems with which the mankind enters the XXI century. The peak of terrorist activity for the period from the end of 1970s and till present times falls on 2005 when over 4924 acts of terrorism has occurred all over the world which led to death of more than eight thousand people (8161). For Russia a problem of terrorism and struggle against it has started to aggravate in 1990s. Unfortunately, next years, despite all efforts of the Russian authorities, it has not lost its importance and is not solved till now especially regarding to neo-Nazism and xenophobia.

The basic reason of terrorist danger in the Northern Caucasus lies in the geopolitical position of this region.

Here have adjacent borders fore huge geopolitical plates: Russian, Turkish, Arabian and Iranian. If the countries of Southern Caucasus as a whole were al-

Russia

ready defined with its political orientation after their separation from USSR/ Russia, Northern Caucasus became arena of struggle for separation of this region from Russia and creation here the Islamic state of radical orientation.

For achievement of this purpose various extremist groupings which have appeared are used and have got stronger owing to support from the foreign states and their special services interested in making the Russian Federation weaker. Officially supporting the observance of human rights and civil freedom in the Chechen Republic, in practice western states support separatists of the Northern Caucasus, contributing to distribution of extremism and terrorism.

Present political situation in the Northern Caucasus is influenced by its favorable geopolitical set-up.

Dissolution of the Soviet Union was considered by some countries of the West as a historical chance to distribute its influence over this region and, hence, to separate it from Russia. For this purpose the simplest way was chosen – destabilization of situation in the Chechen and Dagestan Republics with further distribution of instability on all territory of the Northern Caucasus. As to movement of radicals they are also interested in expansion of their sphere

of influence. The terrorist underground rate acts of terrorism. Under the guise get financial help from outside for this. of local residents they legalize in settleWith dissolution of the USSR for- ments, penetrate into power structures eign wachhabit preachers rushed to and law enforcement bodies. Each field the region. They graduated Islamic commander has a network of inforinstitutes of Saudi mants. They observe Arabia, Pakistan and the places of army disIt is probable, that Egypt, spread radical positions, movements splash in activity of literature, and created of military units, take terrorists underground a number of educaphotos and videos of was its answer to tional institutions. In important objects. successful operations their works Islamic They create points of preachers set before observation near miliof the Russian special themselves a goal to tary bases, open shops services on the implement the tasks to collect valuable inNorthern Caucasus of distribution of ideas formation from the in the end of 2009 as of separatism in the soldiers to transfer it a result of which the Northern Caucasus. to their commanders. ideologist of terrorism After 2000 insurThe Republic of in the South of Russia gent movement on the Ingushetia, which has Northern Caucasus Said Buryatsky and the close relations with has got its specific the Chechen Republic leader of the Northern character: not only and where many Caucasus wachhabits Chechens started Chechens live, is one underground Anzor to become the parof such «hot points».

Astemirov were killed. ticipants of militant Last years there was groups. At present a significant growth of d extremists t it t off tterrorism i natives of other regions and acts there that especially from abroad are being involved to these contrasts with the Chechen Republic groups. where peaceful life has just begun. To In the Chechen Republic members a certain extent it can be explained of militant groups don’t have forces for by the fact that some money goes to open resistance to the federal authori- Ingushetia and they are spent for the ties and thus they have staked on sepa- underground formations operating in EurasiaCritic July-August 2010 45

Russia

the Chechen Republic. Ingushetia has der the direction of the preachers edubecome a convenient place for training cated in Egypt a religious movement and preparation of terrorist operations “Moslems Brothers was formed. This is in the Northern Caucasus and beyond a community of young Moslems-radicals its borders. on the basis of which “the Islamic culWachhabism also got distribution in tural center” in Nalchik and hierarchiDagestan. The enclave cal structure of Islamic of wachhabism and communities in a After 2000 insurgent anti-Russian separatnumber of settlements movement on the ism was formed in the were formed. Young Northern Caucasus zone of Kadar (settleradicals have got into has got its specific ments Karamahi, confrontation with the Chabanmahi and representatives of tracharacter: not only Wanochimachi) in ditional Islam of the Chechens started 1990s. Now its influNorthern Caucasus. to become the ence has decreased, Now in Kabardinoparticipants of militant Balkaria there are but violence was not groups. At present stopped. Each second four mosques for one natives of other act of terrorism is carsecondary school, in regions and extremists ried out by placing and many of which attenactivating explosives, dants have got educafrom abroad are being in other cases terrortion in Saudi Arabia involved to these ists use cars filled with and Egypt. Despite the groups. explosive. These atmeasures undertaken tacks are accompanied by republic leadership by application of the automatic i weapon and d representatives of a traditional and grenade. In most cases members Islam they fail to eradicate the radicals of wachhabit’s jaamats “Djennet” and who have gone underground. Among “Shariyat” take part in these acts. them it is possible to name wachhabit In the Kabardino-Balkarian jaamat “Jarmuk” which is destabilizRepublic at the beginning of 1990s un- ing political situation in Kabardino46 EurasiaCritic July-August 2010

Balkaria for a long time.

In the Northern Osetia there are also some problems connected with radicals. In the beginning of 1990s a community of young Moslem radicals was formed here which during some years became the branched network with an extremist ideological platform.

Their activities concentrated on acts of terrorism and on delivery of recruits for militant groups of the Northern Caucasus. In Karachaevo-Cherkessia the Islamic fundamentalism penetrated into the certain part of youth who began to participate in various Islamic projects.

Thus, the greatest threat for stability in the region of the Northern Caucasus is represented by radicals and mercenaries who are supported by international jihadists and the religious organizations, including «World Islamic league». Their ideological platform is imbued by spirit of extremism and practical activities concentrate on acts of terrorism. Parallel to this there are some changes in tactics of the armed formations leaders. They pay basic attention to creation conspiracy wachhabit structures (jaamats) in all republics of the Northern Caucasus, activity

Russia of which is directed to creation of the united Muslim state in the territory of Muslim regions of Russia.

At the present stage of the development the structure of the international terrorism gets features of international jihads movements and represents the transitive form from the hierarchical militarized structure to more amorphous, decentralized, spreading network, cells of which take only ideology and general installations of its leaders, but are not connected with them directly. In such “spreading� network structure consolidation is carried out on the basis of general ideology of Islamic jihad. But while the majority of terrorist structures both at local and higher levels have mixed character, they represent hybrids of network and erarchical elements. It is characteristic that mutual evolution of these kinds of structures occurs not as much as a result of conscious organizational policy, but mostly during the natural adaptation to certain conditions of existence. However unlike some modern depersonalized functional-ideological networks (for example, Antiglobalists or Greenpeace) for jihads ideological directions to provide effective activity of separate cells are not enough. This problem of structure functioning is solved due to coordination of actions of all cells by combination of negotiations, mutual arrangements and the strategic goals formulated in the most general way. In conditions of informal, latent connections such strategic coordination by means of personal or indirect contacts and general instructions is effective when the ideology of movement itself comprises precise instructions to certain actions or allows to formulate strategic purposes in the way that they can be reached by different ways depending on certain conditions, but anyway they will be qualified as actions towards common goal.

In this sense the modern information-communication technologies, especially Internet, are playing indispensable role helping jihads to structure movement and to coordinate actions aimed to solve global problems.

Besides the general ideology, for effective coordination of separate cells actions in network terrorist underground there is a need for higher level of mutual social obligations and interpersonal trust which can be provided by neither network, nor mixed structures. Not only ideological affinity and feeling of belonging to one network as independent cells unites jihadists. Members of local structure, as a rule, are connected by close personal attitudes which have developed before their arrival to the organization. Community related attitudes, compatriotism, experience got during the study, work and social activities are the priorities. Here we can talk about group of close friends and association of adherents.

Thus, the main strategic resource

for jihad are not arms, which is quite accessible and inexpensive, and not financial support as even large acts of terrorism do not demand great expenses, but ideology in combination with flexible structural organization. Such organization allows carrying out coordination not from the single center, but by statement of the general strategic goals, maintenance of rigid discipline and internal integration into social structures.

If to address Russian realities of struggle against terrorism it is necessary to emphasize that there is no public structures in the country which are adequate to existing threat. Such structures could be formed as groups of citizens providing transport safety, propagation of self-defense rules and behavior in crisis situations, rendering medical and EurasiaCritic July-August 2010 47

Russia psychological help to the victims.

However the terrorism in mass consciousness of the Russian citizens is not yet represented as paramount threat to public safety. As psychologists noticed, public opinion concerning terrorist danger has wavy dynamics. The first shock after the acts of terrorism passes after a while and only a feeling of fear before possible events remains. Terrorist danger becomes abstract and indistinct.

Creates certain difficulties in developing mechanisms of civil counteraction to terror, moving ordinary citizens away from authorities. And still Russian society is realizing gradually that terrorist threat, most likely, remains in foreseeable future and new methods of counteraction are necessary.

Therefore the state policy in this area consists in creation of the branched network of counteraction to terrorism which has the task, on the one hand, to consolidate power and public structures, and on the other hand, to control information streams circulating inside the terrorist underground, including the activity of regional clans, financial groups of support of terrorism and communication at the international level.

Maintenance of all-round integration and increase of multilevel of inter-

48 EurasiaCritic July-August 2010

action in the struggle against terrorism is now possible due to realization of new net centric principles which assume inclusion of three components to such network: sensors, information and power.

The sensor component of net centric system should include a lot of various transducers: metal detectors, gas analyzers (for revealing the presence of explosive atoms in the air), devises of video observation, etc.

As to information component it is a link between sensor and power components that should provide informational superiority over a terrorist underground. Informational superiority is not only gathering and transferring great volume of information for a power component (subdivisions of power structures and rescue services), but also estimating real situation for acceptance of adequate operational decisions.

In the other words, informational superiority is a “game of taking the over� the opponents in investigation, disclosing of his plans and decision-making to apply power structures in proper time.

Frequently in struggle against terrorism there is no opportunity not only to outstrip, but also to catch up with the opponent because of its conspiracy, mobility and freedom of choice of time

and a place of terrorist act. Therefore it is necessary to use asymmetric ways of influence on a network infrastructure of terrorists, including informational and ideological pressure, entering distortions into liaison channels and their destruction.

In this connection effective functioning net centric antiterrorist system assumes: - Creation of network structure adapted for net centric war against terrorism; - Qualified personnel; - Tools for gathering, transfer and display of situational information and corresponding software; - System harmonization for creation of information interface between all its elements (sensors, information facilities and power subdivisions).

Last requirement means joining all elements of the considered system regarding their informational compatibility and maximum speed of information transfer through system elements.

Fulfillment of this requirement assumes development of the unified scenarios of terrorist menaces that will provide increase of system efficiency in presence of limited volumes of operational information.

For maintenance of informational compatibility between the elements of net centric antiterrorist system there is a need to create the single database including classifiers and databases of investigation, monitoring of potentially vulnerable objects for terrorist attacks, structures of terrorist underground, legal structures with extremist orientation, their sponsors, antiterrorist power structures and services of rescue.

Net centric system should be characterized by: - Stability to technical malfunctions and hostile external influences and as consequence - ability to restore; - Efficiency of reaction to the change of situation; - Ability to analyze the situation deeply and generate alternative variants to solve problems; - Ability to apply innovations, i.e. competence to use new tools, instru-

Russia ments and ways of non-standard problem solving; - Adaptability is possibility to get fast reaction on changing and development of external and internal environments and organizational structure according to changes of anti-terrorism struggle principles.

If the first three requirements are not something new and are always required from any organizational structure and technical system, the last two need special considerations owing to their novelty.

Innovability during the last years became the major principle of the development of all hi-tech systems.

Especially it is typical for advanced countries. Fulfillment of this requirement assumes application of new tools and technologies in net centric system.

Adaptability assumes such organi- not only technically and psychologicalzational construction of system when ly, but should also have modern muniintroduction of new forms and ways of tions. Each participant of antiterrorist conducting war against terrorism would operation (either the fighter of special not break the management of power troops, fireman, rescuer or physician) should be the cell of divisions in system. network included to inBesides, any element Deactivation of formational and comof system at a new some elements in mand lines to provide place of disposition in the system could the greatest efficiency the crisis area should not only of his own acequalize chances of the connect quickly to tions, but also actions general network for contradictory parties. of other participants of receiving information Such weak spots are operation. It will allow as quickly as possible the informational and providing the mutual without any negative command channels coordination of actions consequences for syswhich are the “Achilles with reasonable indetem efficiency. Using heel” of the modern pendence of separate the language of sysparticipants in condisystems which the tem engineering, the tions of combat operanetwork should be opponent will try to tion. capable to identify destroy.

However for effecthe new structural ditive interaction of divivision deployed on sions and separate participants in opera new place and to provide its effecation the following items are required: tive functioning in network structure.

- Clear and logical statement of Similarly the network should be able problems by operational command and to work after moving any of its comproviding identical understanding of all ponents to other region for solving the subordinates; new problems.

- Qualified execution of combat One more important problem of tasks; creation the net centric anti-terror sys- Guaranteed absence of distortions tem is a human factor. It is expressed in and losses of information, commands formation of the high-grade fighter of and reports in communication links; net centric war who should be prepared

- Coordination between subdivisions and separate participants during preparation and carrying out of antiterrorist operation.

The essential condition of successful fulfillment of requirements listed above is the increase of mentality of all elements of antiterrorist system. The creation of vocational training of personal is provided for this purpose. Net centric war against terrorism is a struggle of intelligences of humans and computers. Thus it is necessary to pay attention to weak spots in described net-centric system. Deactivation of some elements in the system could equalize chances of the contradictory parties. Such weak spots are the informational and command channels which are the “Achilles heel” of the modern systems which the opponent will try to destroy.

The history of struggle against terrorism shows that alongside with the presence of effectively operating state power structures, active informational and ideological counteraction to terrorist underground and state antiterrorist policy are necessary. Transition from actions of liquidation of consequences of terrorist acts to government politics in the sphere of maintenance of public safety, elimination of reasons of terrorism and minimization of terrorist threats is top-priority task.

EurasiaCritic July-August 2010 49

Azerbaijan

The Performance of Azerbaijan Economics, the Effects of Global Economic Crisis and the Expectations for the Future

By Dr. Geray Musaev Azerbaijan Economics during Soviet Union

that are imported for exporting again after being refined that were bought uring Soviet Union, Azerbai- from these republics (IMF, 1992, p.3).

Once the economic documents are jan’s, which has the quality of being this country’s sub part, taken into consideration, it is clear to economic organization structure and see that during Soviet Union, Azerbaitreatment mechanism took its shape jan had reached a certain development through Soviet Union’s economic strat- level. However, it is possible to say that egy. All of the industrial facilities were those that Azerbaijan lost during this time are more than made up of giant facilithose it has gained. ties that were founded Azerbaijan has always Because, in this peaccording to Soviet been the exporter riod, the fact that ecoUnion’s needs. In Soof the products that nomics are planned viet Union, there was brings the country is being made from a lean for specializing the central caused the income like petrol and division of labor consequence of counand petrol products, towards central plantry’s economic condining. In this perspeccotton, tobacco and tions’ being ignored. tive, the industry that alcohol drinks, as the A lot of products were has the quality of being income that is gained sold to the republics Azerbaijan economby the selling of these that are the members ics’ triggering motor products is piled up of the union by cheap power has been petprices either as raw in a single central, rol industry all along. materials or intermeWhile a very imporAzerbaijan does not diate goods, and then tant part of the export have the right of came to Azerbaijan that is made up of repossession of its own with high prices as fifined petrol products, wealth. nal products. On the machinery and textile other hand, although products and alcohol drinks is being practiced to other re- Azerbaijan has always been the expublics like Russia and Ukraine, a huge porter of the products that brings the part of the import is again made up of country income like petrol and petrol the food products, raw petrol products products, cotton, tobacco and alcohol

D

50 EurasiaCritic July-August 2010

drinks, as the income that is gained by the selling of these products is piled up in a single central, Azerbaijan does not have the right of possession of its own wealth.

When all of this is taken into consideration, specialists pointed to Azerbaijan as one of the two republics as ready for politic independence in the respect of economics. Of course this evaluation is not only based on the rich natural resources of the country but also the perspective of the development of the country economics. For Azerbaijan’s budget income is usually more than its spending, produced national income has been higher than consumed national income (EMIRASLANOV, 2001, p.

50-52). Despite this, economics in Azerbaijan had reached a development level that is high in Soviet Union’s structure but it cannot be evaluated as meaningful. Especially in the last 20 years old era before the independence, the development of Azerbaijan economics did not follow a consistent period. For instance, while the average economic growth rate in the country between 1960 and 1970 was 5.2 %, between 1970 and 1980, it rose up to 7.4 %. Between 1980 and 1990, this rate showed a sharp decrease trend. The economy decreased approximately by 4.9 % between 1981 and 1985, and 5.6 % between 1986 and

Azerbaijan

1990. While the production capacity showed an absolute decrease in 1989, national income also decreased by 7 % in 1990. Especially the fact that energy sector that bears upon natural resources, intensive usage of cheap and abundant labor force was focused on, created convenient environments for economic crisis (ARAS, 2003, p. 10).

When the purchase power parity is considered, before the Soviet Union was fell apart, the average national income per capita in Soviet Union had been 5793 US Dollars, and the distribution of the national income per capita was like this: Azerbaijan 4142, White Russia 6371, Armenia 4183, Estonia 8645, Georgia 5367, Kazakhstan 5847, Kirghizstan 2924, Latvia 7934, Lithuania 7287, Moldova 4600, Uzbekistan 3751, Russia 6656, Tajikistan 2437, Turkmenistan 3059, Ukraine 4944 US Dollars (DUNFORD, 1998, p. 88). As it is clear here, the national income per capita in Azerbaijan was below Soviet Union average.

Transition to Market Economy and the Developments in Economy Azerbaijan that has attained independency in 1991 went into economic reengineering period by transition to

market economy with the conditions the country economy decreased by the happening against it, like economic de- rate of 57.2 %.

Furthermore, as there was no clear crease in the last ten years and losing the strategy for transition Union markets. As raw to market economics, materials, semi-prodFurthermore, as there the economic deciucts, kit-team, market, was no clear strategy sions that were tried finance and managefor transition to to be applied in these ment mastership submarket economics, the years, were disaccordjects were organized economic decisions ed with each other. according to old centhat were tried to be When all of these tral planning, producare concerned, it is tion was stopped at applied in these years, a lot of facilities or possible to mention were disaccorded with the negative progresproduction remained each other. sion that was during inactive. Besides the the first period of the fact that the economic ties were severed with the businesses transition in Azerbaijan economy.

1.

Excessive decrease in proin old Soviet Union and the country lost its market share in other countries, duction 2.

High inflation with the cutting of the subsidies that 3.

Exterior trade and budget were supplied from the central during Soviet Union, there happened shock- deficits 4.

Increase in unemployment ing collapses in production. The war in Nagorno Karabakh and the problem of 5.

Destruction in the distriChechenia caused the export path of bution of income, etc. intermediate goods that are needed for In 1994, with the ceasefire in Nacountry economy to shut down (ARAS, gorno Karabakh, the government tried 2003, p. 12). As a result, economic de- to prevent economic inconsistency that crease starting from the Soviet Union had been going on for years. As the rewent on till 1996 by continuing in the sult of the operations that were made, first years of the transition period. In in 1996, economic growth was provided 1995-1996 that could be evaluated as with the rate of 1.3 %, even though it the first years of the transition period, is at a slight level. In 1996-2000 period EurasiaCritic July-August 2010 51

Azerbaijan Table 1. Macroeconomic Indicators Regarding the Country Economy (1992-2000) Years

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

GDP (mlr.USD)

1.3

1.3

1.6

2.4

3.2

3.9

4.4

4.6

5.3

5.7

6.2

7.3

8.7

13.2

20.9

33.1

48.8

43.0

GDP (%)

-22.6

-23.1

-19.7

-11.8

1.3

5.8

10.1

11.4

10.6

10.6

10.8

10.5

10.2

26.4

34.5

25.0

10.8

9.3

GDP Per Capita(USD)

180.4

179.9

217.9

282.1

357.5

409.2

441.5

480.1

662.9

710.5

768.9

888.5

1048

1579

2471

3841

5603

4874

GDP Value in the basis of 1991=100 (%)

77.4

59.5

47.8

42.2

42.7

45.2

49.7

55.4

58.8

62.7

67.8

74.9

82.5

104.3

140.3

175.3

194.3

212.3

Source. The table is set up by the help of the data in the reports of the State Statistical Committee of the Republic of Azerbaijan and IMF, Rebalancing Growth, World Economic Outlook, April 2010.

that could be evaluated as the second period of the transition, they tried to proceed in the direction of the goals below (HESENOV, 2001, p. 11): 1.

Macroeconomic consistency in the country was obtained 2.

The country’s basic natural resources reserves were made to be processed and therefore economic growth was carried out 3.

An economic structure that is based on market principles and in the direction of liberal- democratic bases was tried to be carried out 4.

Integration of the world economy and global and local economies was tried to be carried out The developments that happened during this period with the influence of the decisions that were taken about structural change could generally be put in order like this (ARAS, 2003, p.

21): 1.

By providing the

macroeconomic consistency in the country economy, economic growth process started 2.

In the direction of the strategy of activating the important natural resources in the country, especially petrol resources, big success was obtained 3.

A new socio economic environment was built up with the help of the land’s giving away to private possession in the sector of agriculture.

4.

With the liberalization in the economy, improvement of exterior trade relationships and the making the foreign investments contribute to privatization, an important, basic and continuous source for economic development was reached.

In the period after 2000 that can be evaluated as the third stage in the period of transition to market economy, the goals that are planned to make true

can be lined like this: 1.

Making the economic growth continue 2.

Accelerating substructure investments 3.

Supporting the other sectors with the income that is gained by petrol industry 4.

Strengthening the social side of the economic politics according to development level and enhancing the level of social welfare In the period that has been going on since 2001, as the result of the increase in petrol production and petrol prices in the world, the progression below happened in the economy: 1.

Consistency in economic growth 2.

Employment level in the country rose up 3.

Other sectors besides petrol freshened 4.

Poverty level in the country decreased considerably

Current Economic Situation, the Effects of the Global Economic Crisis and Expectations about the Future Azerbaijan economy that transits to market economy in company with the problems that were mentioned above, is one of the countries that have the highest growth trend with the economic stability that has been set up in the middle of the 1990’s and the income that has been provided from its petrol industry, which was the locomotive of its economy in 2000’s. Starting from the year 1996, the realization of the seamless growth rates brought the increase 52 EurasiaCritic July-August 2010

Azerbaijan of economic extent with. When we examine the data in the table 1, we see that the country reached 43 million US Dollars growing by the rate of 212.3 % with steady prices when compared to GDP’s year 1991 and thus according to IMF evaluations, the country’s economy went in the 80 biggest economies in the world, and besides, that the country is placed in the high position of the medium level developed countries category in the World Bank’s classification of the countries according to national income per capita by GDP’s reaching 4874 dollars per capita in the country.

It is possible to say that this economic extent that has been reached today is actually generally equal to the economic extent in the beginning of the 1980’s. Likewise, the idea of the highest economic extent and welfare standard that Azerbaijan had reached during the Soviet Union happened in this period is admitted by the economists. As from this period, the high rate decreases in the last 10 years of the Soviet Union and the first five years of the transition period made economy collapse, which was not easy to reach the prior standards as economic growth numbers provided in the following 15 years. If we consider these realities, the decreases in the 15 years period hindered the growth of Azerbaijan economy more today.

In these years, the sharp reducing of grape and cotton production under the name of reengineering in agriculture by

force of economy policies during the Soviet Union caused the annihilation of these areas that have a significant share in Azerbaijan economy, and the coming up of Nagorno Karabakh War in this period brought almost consciously devastation of the economy and inconsistency with. In this respect, political and economic consistency in the country that has been obtained in the middle of the 1990’s and has been maintained today is understood to be very important for the country’s economy.

Successful policies aimed at prog-

ress of the petrol industry that has been running in the environment of economic consistency enabled the increase of the production and income in this area. The increase in petrol production in 2000’s and the increase in the petrol prices in the world markets enabled the balance of payments checking accounts to give more by increasing the export petrol income. As it can be seen from the Table 2, the checking account that has the deficit of 2589 million dollars in the year 2004, in 2005, 2006, 2007, 2008 and 2009 respectively gave 167 million

Table 2. Balance of Payments Indicators (mln. US Dollars) 2008

2009

9019

16453

10173

15224

23012

14583

21269

30586

21097

12074

20190

29143

19970

-4350

-5269

-6045

-7574

-6514

-2238

-1970

-1923

-2131

-2343

-1613

Income

-701

-1646

-2681

-5079

-5266

-3519

Instant Transfers

189

484

566

1005

1050

722

Capital Account

3023

567

-1737

-5760

-3557

-6019

Reserve Transaction Account

-384

-608

-1717

-2898

-12050

-2691

Net Error and Lack

-50

-126

-256

-361

-846

-1463

Balance

0

0

0

0

0

0

Years

2004

2005

2006

Checking Acoount

-2589

167

3707

161

3299

7745

Product Export

3743

7649

13014

Petrol and Natural Gas Export

3233

6883

Product İmport

-3582

Balance of Services

Foreign Trade Balance

2007

Source. The Central Azerbaijan Bank data (www.cbar.az, 01.06.2010).

EurasiaCritic July-August 2010 53

Azerbaijan Table 3. Economic and Financial Indicators (2005-2015) Years

2005

GDP (millions manat)

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

12,523

18,746

28,361

38,006

34,579

41,596

43,390

45,400

47,415

51,828

53,217

Increase (%)

26.4

34.5

25.0

10.8

9.3

2.7

0.6

3.0

2.7

7.8

0.7

Off Petrol GDP (millions manat)

7,002

8,655

12,446

17,431

18,322

20,003

21,737

23,519

25,473

27,500

29,817

8.2

12.1

11.3

15.7

3.0

4.2

4.7

4.9

5.0

5.0

5.0

1579

2471

3841

5603

4874

5729

5929

6154

6376

6914

7043

2.6

-0.2

2.6

20.8

6.8

18.3

18.3

20.6

22.1

26.2

26.0

-31.1

-28.3

-38.2

-38.5

-34.0

-32.6

-30.2

-27.9

-25.7

-22.9

Increase (%) GDP Per Capita (USD) Public Financial Genral Balance/GDP (%) Primary Balance Excluding Petrol Income/GDP (%)

-12.6

Source. The table is created by using the data from IMF, Republic of Azerbaijan, Staff Report For The 2010 Article IV Consultation, IMF Country Report No. 10/113, Washington DC, May 2010, p. 20, and Table 7.

dollars, 3707 million dollars, 9019 mil- the global economic crisis are not dilion dollars, 16453 million dollars and rectly experienced in country economy 10173 million dollars more. When we today, in case of the crisis becoming look at export numbers, it is seen that long term, the country economy might petrol and natural gas export have a sig- get affected directly. As the country nificant share in the total export. Simi- finance markets are not very open to larly, while total product export income world finance markets, and exchange happened in 2009 was 21097 million reserves are inadequate, struggle with dollars, 19970 million dollars of this; in the crisis in short term is easily posother words 94.6 % of it was made up by sible in the country. However, as the petrol and natural gas export income. cheapening of the petrol prices in world These increases markets would reduce in petrol and natural petrol export income, It is possible to say gas income enabled it might also cause exthat this economic GDP to grow in 2005, change reserves to melt. extent that has been 2006 and 2007 by the This shows that a long reached today is rates of 26.4 %, 25 % term economic crisis actually generally and 35.6 % respecwould affect the counequal to the economic tively. On the other try’s economy negahand, thanks to of extent in the beginning tively. The predictions the income obtained about the future of the of the 1980’s. from here being used country’s economy are in other sectors prothat economic growth gression and increasing exchange re- will be inconsistent with the effect of serves, the country economy did not get global economic crisis and fall down. affected much from the global econom- According to the numbers that were ic crisis that started in the beginning of published by IMF in the Table 3, ecothe year 2008 and has been continuing nomic growth in the country is going to since, on the contrary to other coun- be 2.7 % in 2010, 0.6 % in 2011, 3.0 % tries. 2008 and 2009, in which decrease in 2012, 2.7 % in 2013, 7.8 % in 2014, in country economies along the world and 0.7 % in 2015. Surely, it is also poswas happening, GDP in Azerbaijan in- sible to say that these predictions that creased by the rate of 10.8 % and 9.3 % were made by taking today’s economic respectively (Table 1). The main reason terms in consideration may change. that growth rates slew down compared This might happen because of the price to previous years was the cheapening of change of petrol in the world market. the petrol prices in world markets.

Still, if we happen to interpret the future Even though the negative effects of of the country’s economy in direction of 54 EurasiaCritic July-August 2010

these predictions, with decelerating of the economic growth, it is seen that the shares of the sectors apart from petrol is going to increase in GDP. The share that the sectors not including petrol got from GDP is going to reach 56 % by increasing, if we to express by the rate, in the year 2015, compared to the years 2006, 2007, and 2008 that it happened at the lowest degrees ( respectively, 46 %, 44 %, and 46 %). This situation, which is a sign that economy will be less dependent on petrol industry, actually reflects the consequence that the income provided by petrol industry is going to be stable or decrease, and the growth increase in other sectors apart from petrol is usually going to remain stable, between 4.2 % and 5.0 %, though it slows down compared to previous years.

The decelerating of the growth in other sectors apart from petrol compared to previous years shows that the growth in these sectors actually happens with the help of petrol industry and correspondingly with it, and these sectors are being tried to develop with the income obtained from petrol industry.

Another consequence that could be drawn in the direction of the data in Table 3 is that public financial general balance (general budget) is going to get better day by day and reach important plus values. The redundancy that will come up in public financial general balance in 2015 is going to be equal to GDP’s 26 %. On the other hand, when the petrol income is not considered, the

Azerbaijan

result that this balance will still get better comes up. Similarly, this rate that expresses how much the public spending is met with other public income sources other than petrol income is going to reach 22.9 % of the GDP increasing day by day as a negative value in 2015. That this value is negative shows that public spending is not supported financially with any other public income sources other than petrol income.

In an environment that there will not happen important increases in petrol income, the meaning either the redundancies that would be supplied in public financial general balance or recoveries in primary balance except petrol income implies is that in economic crisis environment, increase in public spending will not happen any more, as in the previous years. As much as this practice carries the anxiety of staying away from the negative effects of the global economic crisis, on the other hand, it should be seen as the most important cause of the decelerating that would come up in the following years

in the growth of the sectors apart from petrol, which are supported with especially public spending.

The Consequence During the Soviet Union period, Azerbaijan that had reached an inconsistent development standard, even though it has rich natural sources and high economic growth potential, has reached a considerable economic growth in a short time by carrying out a successful economic growth policy due to rich natural resources, especially petrol and natural gas. However, though it is a fact that the country has grown by 212.3 % with steady prices when compared to GDP’s year of 1991, the dependency of the country’s economy on the income provided from petrol industry has even increased more in recent years. Also, with the reduction of the petrol prices in world markets, there happened a decrease in 2008 and 2009 compared to the years before and this situation is predicted to continue in the following years.

At this point reached, it is important to improve other sectors except petrol to stay away from the effects of the global economic crisis and maintain the growth trend. Transfer of a part of the income that was obtained from petrol industry to these sectors by government in the previous years brought some important positive development with and there are also positive growth rates in the sectors except petrol. Yet, removing the dependency on petrol sector and the shifting of growth dynamics to the sectors apart from petrol requires determining the primary areas and pragmatic and efficient usage of these supports that are made by the government.

Especially, as is due to the geographical position of the country, tourism, transportation and agriculture potential is high, and the investments that are going to be practiced in the direction of prolificacy principle with the spending that is going to be made to these areas might contribute to the growth more by bringing added value to the country economy.

EurasiaCritic July-August 2010 55

Turkey-Armenia

Turkey-Armenia: Normalization Process still Continues?

By Oya Eren

56 EurasiaCritic July-August 2010

Turkey-Armenia

A

rmenian question which is one of the main issues of Turkish Foreign Policy and threatens the prestige of Turkey in international relations, become a complicated issue for academic studies, especially for political scientists and historians.

If the issue is examined chronologically, after the signing of the protocols which was signed in Zurich at October 2009, documents are brought to the both parliaments and both sides wait for confirmation process. After the protocols confirmed in both parliaments, protocols will become active.

Turkish Parliament started the process of confirmation and both Armenian Presi-

dent Sarkisyan and Armenian Foreign Minister Nalbantyan announced that Armenian Parliament will confirm the protocols after the Turkish parliament’s confirmation. Armenia is disturbed because Turkey did not announce a certain date for confirmation of the protocol also Turkey announced that Turkish Parliament will not accept the protocol until Armenia withdraws from the invaded Azerbaijan lands. Sarkisyan first complained about this issue in December and made an intimidate speech about the issue.

Sarkisyan declared an constitutional amendment plan which includes withdrawal from international treaties. He announced that Armenia may reject the protocol in the parliament if Turkey delays the confirmation of the protocol.

Thus Armenian Parliament took the Amendment on International Treaties Law into their agenda in the end of the February. This proposal which seems to be a intimidation towards Turkey may be understood as a move for internal policy. Armenian government was so much criticized by opposition and Diaspora while the protocol signing process and delay of Turkish Parliament empowered

EurasiaCritic July-August 2010 57

Turkey-Armenia

those criticisms through Sarkisyan empowered.

Government. At this point, Sarkisyan While US was using the genocide tried to prevent those criticisms and he issue to force Turkey for confirming wanted to draw a powerful side image the protocols, an important part of the by this amendment.

Armenian lobby used this proposal to Intimidate declarations of Arme- kill the protocols with the blaming the nian politicians and cautious move- Armenia with giving compensations to ments of the Armenian Parliament Turkey. Armenian lobby tried to underblock the way of normalization process mine the protocols with this proposal between Turkey and and they wanted the Armenia. finish the process of Turkish Parliament In the march, Arconfirmation of the started the process menian Genocide isprotocols in the both of confirmation sue discussed in USA sides.

Representatives ParAt last, Armeand both Armenian liament, Foreign Polnian Genocide Law President Sarkisyan icy Committee. This Proposal accepted in and Armenian Foreign discussion took the the USA RepresenMinister Nalbantyan first place in Turkey’s tatives Parliament in announced that agenda. Ankara espeWashington on 4 th of Armenian Parliament cially Turkish Ministry March. of Foreign Affairs critiProgress was will confirm the cized Representatives jammed at the disprotocols after the Parliament harshly cussion of proposal’s Turkish parliament’s because of decision of possibility of proposconfirmation. taking this discussion al to taken into the into the agenda. agenda of American This decision of discussing Arme- Congress. i A C IIt was considerable that the nian Genocide Law was not a surpris- proposal which was accepted in the US ing event. Thoughts which defend that Representatives Parliament and which US trial of using this issue for putting was not binding, hampered both Turka pressure on Turkey for confirmation ish – Armenian and Turkish – American of the protocol by Turkish Parliament relations.

58 EurasiaCritic July-August 2010

President Obama’s speech which will be held on the traditional Genocide Commemoration day of Armenians, 24 th of April, waited with a high level of curiosity.

While the Turkish – Armenian relations and Genocide Proposal were focused on the day 24 th of March, another decision was announced by Sweden.

Sweden became the 20 th country which was recognized the Armenian Genocide with the decision taken on the 11 th of March 2010.

This decision is not binding just like the other decisions taken by other countries. It does not bring a legal obligation to both countries. So, decision does not mean any more than reflecting the parliamentarians’ opinion. Besides this, those decisions empowers the Armenians idea of 1915 Armenian Genocide. It is clear that this decision will not play a positive role about the Turkish – Armenian relations just like the other decisions which was taken by other countries. It is possible to say that those decisions are preventing the negotiation progress between Turkey and Armenia with historical conflicts and discussions.

Thus aggressive declarations of Armenian politicians went on in the March. Sarkisyan made a speech in De

Turkey-Armenia Zor, Syria in which he repeated the Armenian Genocide claims and focusing on Turkey – Armenia relations. Sarkisyan emphasized that Armenia does not abandon its desire to recognition of Armenian Genocide by other countries because of the negotiations between Turkey and Armenia.

Harsh speech of Sarkisyan seems to be made for Armenian internal policy.

It is clear that this approach does not make any sense for constructing a permanent friendship between Turkey and Armenia or finding new ways to normalizing the Turkey – Armenia relations which seems to be desired by Armenian side too much After all these, Armenian Genocide Law proposal taken into the agenda of England Parliament after US and Sweden on 30 th of March. The House of the Lords started the discuss whether the 1915 incidents are genocide or not?

In the session, demand of accepting the 24 th of April as a commemoration of genocide day rejected.

In the march, Turkey stepped for resolving the problem of confirming the protocols. Turkish Ministry of Foreign Affairs undersecretary Feridun Sinirlioglu went to Erivan as the special representative of Prime Minister Recep Tayyip Erdogan. He delivered Erdogan’s letter to Sarkisyan. The message of the letter was: The cost of reaching an agreement costs less than dissolution between Armenia and Turkey.

By this step, Turkey became the side which fastens the negotiation and diplomacy for achieving success in the normalization process. Erdogan had sent another letter to the Baku. In the letter he gave messages about the process and Karabag which was expected to relieve Baku. In the letter, Turkey’s persistence about not opening borders to Armenia until the resolution of Karabag problem was repeated.

On 12 th of April, Erdogan met with Sarkisyan at the Nuclear Security Summit in US. Erdogan’s letter to Sarkisyan discussed in detail in the meeting. After the meeting Sarkisyan defended that Turkey negotiates with Armenia and Armenians with preconditions.

Sarkisyan continued to make ag- the meeting held in 12 th of April begressive speeches during his US visit cause both sides did not change their too. While his visit to Wilson’s Grave, attitude but sides were decided to conHe said that Armenia does not wish tinue to negotiate. to discuss genocide But Armenia and He do not believe President met with ofHarsh speech of that Turkey may have ficials of the Tashnak Sarkisyan seems a positive role in the Party in US. Tashnak to be made for Karabag process. party left the coalition Armenian internal Sarkisyan who government because policy. It is clear that puts Armenia’s three of the protocols with this approach does conditions forward in Turkey and this event show that Sarkisyan his speech, told that not make any sense started to look the is“Turkey cannot negotifor constructing a ate with Armenia with sue from an internal permanent friendship policy perspective. preconditions. They between Turkey On the other hand, will not discuss 1915 and Armenia or Turkey’s efforts to reGenocide issue and he finding new ways to solve Karabag probdefended that Turkey cannot play a positive normalizing the Turkey lem was remarkable.

Turkey contacted with role in the Karabag – Armenia relations US and AGIT Minsk process, Turkey cannot which seems to be group to resolve the be the mediator in the desired by Armenian problem.

Karabag issue. With side too much Turkey held the these conditions raised initiative in its hand

by Sarkisyan, the process between Turkey and Armenia went with linking the protocols issue to the Karabag issue while Armenia had an ininto another deadlock.

There was no success achieved in flexible policy on the issue with pushing

EurasiaCritic July-August 2010 59

Turkey-Armenia

for a confirmation of protocols without suspending the protocols.

Another aim of Armenia’s attitude any preconditions.

On 22 nd of April, Armenia Presi- was to influence Obama’s declaration dent Sarkisyan announced that they which will be held in 24 th of April.

Armenia’s huge expectations from had stopped the confirmation process Turkey is one of the of the protocols but important reasons they are loyal to their American Presidents’ lying behind this designing under the proApril the 24 th cision.

Armenians tocols. Armenian govmessages are believed that some ernment repeated its documents of internal attitude once again achievements would policy. In this sense, with this announcereached before April those messages do ment. They had anthe 24 th. But Turkey not have a high level nounced this decision did not confirmed the in the past too. protocols and anxiety of importance for Glorious anwas risen while 24 th Turkey but because of nouncement of Armeof April approached. a prejudiced approach nian government is a Armenia felt itself in for a historical event, result of government’s a need of act and this they cannot be decision taken. relations with balance acceptable either.

When April the of Armenian internal 24 the came, Obama policy and Diaspora. If protocols were confirmed med in the short did not say the word “genocide” in his term and if borders were opened, it speech, he used the Armenian idiom of would be a great success for Sarkisyan. “Metz Yegern” just like in his speech Armenia had troubled with Turkey’s held in previous year.

He indirectly recognized the 1915 precondition of Karabağ issue. Armenia tried to get out of this situation with incidents as Armenian Genocide with 60 EurasiaCritic July-August 2010

these words. In contrast to this attitude he was criticized by Diaspora for not owing his promise which was given while Obama was president candidate.

American Presidents’ April the 24 th messages are documents of internal policy. In this sense, those messages do not have a high level of importance for Turkey but because of a prejudiced approach for a historical event, they cannot be acceptable either. When this event is analyzed from a foreign policy perspective, this message did not make a huge problem when compared to other problems between Turkey and US. The most remarkable point of Sarkisyan’s 24 th of April speech was defining the 1915 incidents as a Ottoman State policy which aims to holocaust Armenians but he did not relate it with Republic of Turkey in contradiction to what was used to.

In the May 2010, Turkey’s sensibility on Karabag issue was still affecting Turkish Foreign Policy. Turkish Foreign Affairs Minister Ahmet Davutoglu said that Turkey desires to open its borders with Armenia but it is not enough to open Turkey-Armenia border, Armenia-Azerbaijan border must be opened.

In this period in which Turkey and Russia getting closer to each other, the most important issue to be resolved is Karabag problem in South Caucasia. Issue was also in the agenda at the Medvedev’s visit to Turkey. While the Turkey-Russia negotiations not only trade agreements but also strategic agreements were signed. Incidents and events in Karabag and South Caucasia were discussed in the proceedings of Medvedev’s visit. While efforts of Turkey and Azerbaijan to change the status quo in the region, Baku and Ankara had shown a confidence to Russia for resolving the problem.

In the middle of the May, Turkish Prime Minister Erdogan visited Azerbaijan and he repeated the precondition of ending up the Armenian invasion of Karabag lands for confirming the protocols. He made a speech with Azerbaijan President Aliev and he had spoken about the energy and pipeline plans in the region also.

Turkey-Armenia

Parliamentary elections held in the invaded Karabag region. Karabag Armenian Government which tried to show that “Karabag has liberty”, could not reach its aim. Azerbaijan, Turkey and EU declared that elections did not have a legal base and elected parliamentarians will not recognized as Karabag representatives.

After all, dialogue which was started with Turkish President Gul’s visit to Armenia as a guest of Sarkisyan for watching the national football match between Armenia and Turkey, still continue in spite of all problems and Armenia.

Armenia got into this relationship for not being isolated from the natural gas, railway and oil projects in the region. Protocols which are masterpieces of diplomacy, could not be confirmed

Both Armenia and Armenia supporter International Community should abandon their anti-Turkey policy to accelerate the negotiations between Turkey and Armenia.

In this period in which Turkish Foreign Policy is having an important reformation, Turkey’s efforts for resolving the problems with Armenia can only be meaningful if Armenia responses positively.

because of Armenia’s lacking steps.

It is understood that both sides were differently interpreted the process. Azerbaijan was against to these protocols since from the beginning.

It would be true to say that both 2 protocols signed by Turkey and Armenia are in a deadlock now.

This deadlock can only get finished by Armenia. Armenia should change its attitude towards the Karabag issue by negotiating and Armenia should abandon its arguments about the 1915 incidents.

Both Armenia and Armenia supporter International Community should abandon their anti-Turkey policy to accelerate the negotiations between Turkey and Armenia. In this period in which Turkish Foreign Policy is having an important reformation, Turkey’s efforts for resolving the problems with Armenia can only be meaningful if Armenia responses positively. In this sense, if both Turkey and Armenia can show the persistence through the resolution just like they did in the Zurich protocols, an absolute resolution can be reached.

EurasiaCritic July-August 2010 61

Cyprus

A Deadlock Again?

By Tugce Ezgi Yuksel The most important political office is that of the private citizen. ~Louis Brandeis

R

ecent presidential elections in TRNC was expected to set an important date for the future of both the island and Turkey‘s accession process to the EU. The phase of developments in Cyprus as a whole, starting from the Guarantee Agreements of 1960 can be regarded as volatile for the clear reason that consistency rather means the situation will remain constant or it will move towards a certain direction. However in the island the future was always unclear and unfortunately it seems to be so in the present day. There is almost a consensus among the western opinion that Derviş Eroğlu as the president of TRNC will not be as constructive as the former president Mehmet Ali Talat in the negotiations and direct talks between two sides. This is partly because Eroğlu’s political orientation as a representative of the right-wing National Unity Party (UBP). No doubt at all along with the good of the Turkish Cypriot people of TRNC, Turkey is also very much concerned about a future solution in the island as an essential factor in Turkey’s long and laborious accession process to the EU. Problem on the island was the most important of the points which the EU always emphasized as an obstacle in Turkey’s way to be a full member. On account of perceiving the concerns of European countries objectively about the results of the presidential elections, one might understand the image of Eroğlu as a nationalist party member created a negative image in people’s minds about the integration of the is62 EurasiaCritic July-August 2010

Cyprus

land. Despite the fact that Eroğlu does not by a great majority but on the connot share all the ideas of Talat in a broad trary there is a slight difference in the context, he is aware of the importance percentage of votes. The results made everybody surprised of the negotiations. He in a manner. Regardwill be as committed as So rather than the ing Eroğlu as a person the former colleague of political orientation of who will not ever be him for the sake of citiEroğlu, this hopeless positive in the peace zens of TRNC as well attitude especially in process is I think a as for the sake of Turthe European media policy of attrition and key’s accession process and intellectual it is likely to become to the EU. an excuse for further As an independent community is likely to state TRNC went for have a negative impact rejections of a solution by the Greek presidential elections on Turkey’s accession Cypriots. So rather in 18 April 2010 which process as well as the than the political orimade Eroğlu the new future of the island. entation of Eroğlu, president. To analyze this hopeless attitude the results of the elecespecially the European media and tions first the proportion off th the votes t i ll iin th between two strong candidates should intellectual community is likely to have be concerned. Eroğlu won the election a negative impact on Turkey’s accession

process as well as the future of the island.

It is essential to examine Eroğlu’s former declarations. In fact his declarations are the first source of the western media to put the blame of any possible future scenarios of deadlock in the island to the TRNC. Eroğlu in his former speeches insisted on a solution of a confederation meaning that both Turkish and Greek soldiers will remain in the island and these states will continue to have their power to some extent and also there will be a state named TRNC. However this solution is not likely to have support neither in the EU nor in the UNSC. Nearly all the western states are in favor of a federal, bi-zonal, bicommunal state in Cyprus. It can not be denied that TRNC had taken certain steps in the last five years under the presEurasiaCritic July-August 2010 63

Cyprus

idency of Talat. He has been welcomed to any kind of transportation from by certain state agents and he had the Greek Cypriot side. This attitude is right to attend the parliamentary as- argued to be contrary to the Customs sembly of CoE as a leader of a commu- Union which Turkey is a party of. Hownity. Also EU countries started to open ever this decision was made in 27 Februup liaison offices in TRNC. These are ary 1997, before this date Turkey’s ports remarkable developments especially was open to Greek Cypriots. So this is considering the fact that for long years another important problem that Turkey TRNC politicians did should resolve about not have such an opCyprus with respect to Turkey on the other portunity. In spite of the EU process. hand, should not these facts in the time Despite the fact interpret the issue of of Talat, Eroğlu will that the full memberCyprus only a step for hold the negotiations ship of Greek Cyprifull membership to the ots to the EU was a from where Talat left.

EU, but also for the Special advisor of UN clear sign of further Secretary General; wellbeing of the people deadlock in the island, Alexander Downer Turkish side should on the island who recently proposed the put its all efforts in orsuffered from political date as 26 May to start der not to be blamed interests of several the negotiations and again like it happarties for years.

Eroğlu did approve. pened in the case of Eroğlu as the highest Denktaş. Even if there representative of his community it should h ld are meaningful i f criticisms, sometimes convince or at least should do anything putting all the blame to one person to convince that it is the Greek Cypri- becomes a way of removing possible ots who consistently reject the solution. blames from oneself. First Denktaş, Also he has to emphasize Turkey’s posi- now Eroğlu became the target of the tion with respect to the peace process arguments which are likely to lead a redeliberately. ally damaging outcome for the solution Turkey closed its ports and airports in the island. However they are elected 64 EurasiaCritic July-August 2010

representatives to a country even if it has not been recognized by the international community. No matter what the outcomes are, it is clear that they will have impacts on Turkish foreign policy objectives which are related directly or indirectly to Cyprus. One of the most favorable developments may be recognition for TRNC. Even if it does not seem to be possible in the present conjuncture, TRNC and Turkey should work for this. The only thing Mr.Eroğlu needs is trust and goodwill of his society, Turkey and European countries which are involved in the process to some extent. As the current Ambassador of Britain to Ankara, David Reddaway put the other day; Europe has concerns about Eroğlu’s contribution to a positive peace process. Well, Europe always has concerns. The situation is not new, so neither the authorities of TRNC nor Eroğlu should make their ambition to solve the problem down.

Turkey on the other hand, should not interpret the issue of Cyprus only a step for full membership to the EU, but also for the wellbeing of the people on the island who suffered from political interests of several parties for years. They deserve a remedy.