This week was the turn of Turkish Prime Minister Tayyip Edrogan to pay the price of his friendship for deposed Egyptian president Mohamed Morsi in the wake of the abdication of their third friend, Sheikh Hamad bin Khalifa Al Thani, Emir of Qatar, in favor of his son, Sheikh Tamim.
Both have taken a precipitous drop in prestige as a result of the Muslim Brotherhood’s downfall in Cairo.
And, at home, Turkey’s central bank, reading the signals, decided to bow to investors in defiance of the red-faced prime minister
The lira has lost 7% of its value against the dollar since May. Anti-government protests have put investors on edge. Erdogan’s strong-man rhetoric has reinforced worries about the country’s stability. On top of this, Turkey has also been hit by the general withdrawal of funds from emerging markets after the US Federal Reserve signaled it would at some point slowly phase out quantitative easing.
To defend the lira, Turkey’s central bank has spent over $6bn this year through foreign currency auctions – more than 10% of its net foreign reserves – including $2.3bn in a single day last week. That’s not sustainable given the country’s challenging external financing needs. The current-account deficit, at almost 7% of GDP, requires roughly $5bn of inflows each month, according to Barclays – assuming that Turkey can roll over all of its external debt.
Shunned by Obama, Saudis and Israelis
Erdogan wants to keep interest rates low to support the type of growth that has fuelled the electoral success of his AKP Party. The central bank, however, cannot accommodate him any longer.
On July 9, the central bank spent $1.3 billion of its reserves to stop the lira going into freefall after throwing a record $2.25 billion at the market on Monday.
While this was going on in Ankara, Saudi Arabia, the United Arab Emirates and Kuwait showered $12 billion on the post-coup military rulers of Egypt in a single day.
Erdogan had no one to turn to for help. He had just lost his only reliable ally in Doha; Saudi King Abdullah shuns him and President Barack Obama, a former admirer, who once portrayed Erdogan as the model of a democratic, moderate Muslim ruler, has not forgiven him for reneging on promises that were important props of the US president’s Middle East aspirations.
One of their mainstays was supposed to be a strong strategic-military-economic bond between Turkey and Israel following their reconciliation. The president persuaded Israel to make the running as well as opening its ports for the transit of Turkish exports to the Persian Gulf
Obama's ultimate dream was a new pro-American Sunni grouping of Turkey, Egypt, Qatar and Hamas, with Israel supplying intelligence.
Erdogan promised to cooperate in this scheme.
Erdogan blames the “Jewish lobby” for his troubles
But even before the coup in Cairo booted the Muslim Brotherhood out and upset Obama's plans, the Turkish prime minister forgot his promises and turned away from Washington.
He started blaming “foreign agents” for the anti-government protests which first erupted in May over plans to pave over an Istanbul park.
He then sent his Deputy Prime Minister Besir Atalay to fix responsibility for the unrest on the "Jewish Diaspora” accused of being in league with the international media to defame him.
Spokesmen of the ruling AKP then branded the demonstrations "an international plot” with the “interest rate lobby” at its center – a pejorative reference in Islamic political culture to Jewish bankers.
After hearing those epithets, relations with Israel naturally sunk back into their former antipathy and all exchanges were frozen.
After burning all his bridges, Erdogan is confronted with a fresh wave of protests against his government in Istanbul which are likely to spread to other Turkish cities as they did in May.