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Old Posted Jan 8, 2007, 3:09 AM
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Turkey...setting a higher bar?

From: http://www.iht.com/bin/print.php?id=4115983
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Quote:
Setting a higher bar for Turkey?
By Caroline Brothers
Friday, January 5, 2007

ISTANBUL
Its people are richer than those in Romania, its economic growth outpaces that of Bulgaria and its goods were moving freely within the European Union when the two Eastern European countries were still emerging from communism.

But Turkey, unlike Romania and Bulgaria, which were welcomed into the EU this week, will not be joining the club any time soon.

The controversy over Turkish admittance into the EU goes beyond economic issues, as Turks and Europeans alike debate the role of a majority-Muslim country in the 27-member bloc. But based on the broad membership criteria, the Turks could be forgiven for thinking that a double standard applied to them.

Spain and Portugal, after all, did not have to meet strict criteria on environmental or financial sector regulation when they joined 20 years ago. Nor did they have to reach such exacting standards in areas like their legal system and internal security, even though the criteria have changed over the years.

And Turkey, by several economic measures, was already doing better than Bulgaria and Romania before accession talks for all three countries began. The official 11 percent Turkish unemployment rate in 2003, before its talks got under way, was lower than the 16 percent rate in Bulgaria in 1999, before its talks began, according to the Independent Commission on Turkey, a group of European policy makers set up to examine issues related to Turkish EU membership. That jobless rate was equal to Poland's and better than Slovenia's in 1997, before the start of their talks.

A smaller percentage of the population was employed in agriculture in Turkey than in Romania — 33 percent compared to 42 percent — and per capita income in Turkey was higher than that of either Romania or Bulgaria.

Moreover, there is a widespread view in the EU that Bulgaria and Romania were allowed to join too soon, and that Brussels was wrong to cede its leverage — notably over anti-corruption issues — by fixing a date in advance for Bulgaria and Romania to join.

Katinka Barysch, chief economist at the Center for European Reform in London, said that the EU was not about to repeat the mistake by setting an entry date at this stage for Turkey or any other future aspirant, like Serbia or Croatia.

"Officially, the criteria are exactly the same for everyone," Barysch said. "But the criteria are vague. The European Commission has to assess whether it is a competitive market economy, whether there is a sufficient level of governance."

One EU official, who spoke on customary condition of anonymity, agreed that the Copenhagen criteria for membership were "pretty vague."

"Turkey has basically fulfilled all those economic criteria — it can be considered a market economy," she said, adding that the EU had been reluctant until a few years ago to concede that status to Romania. "But Turkey also has to show it can apply EU law, meet the political conditions and take on all the EU rules and regulations."

She denied that there was a double standard, saying that the EU was careful not to ask new members to do things that existing members had not done themselves.

She conceded, however, that it would be much harder for Turkey to gain entry than it was for Greece, Spain or Portugal, since Turkey would be joining after the creation of the single currency, the border-free Schengen zone and the single market.

Francesca Pissarides, senior economist for Romania and Bulgaria at the European Bank for Reconstruction and Development, said that the EU would keep a close watch on the new entrants. "Although Bulgaria and Romania have been admitted to the EU, safeguard clauses have been put in place that would encourage continuous reforms," she said.

The membership criteria, or "acquis," the body of EU laws to which new members must conform, keeps increasing as the EU evolves, and now extends to 35 chapters.

Barysch said the increased complexity was not necessarily bad for Turkey.

"You could argue that that is good for the country, because the acquis represent international best practice," she said. "But Turkey is suspicious that the EU won't let it in anyway, no matter what it does."

Pointing to calls for referendums on Turkish EU membership in countries like France, she said that the feeling in Turkey was "not unfounded."

Certainly, Turkey gets little credit for its economic advances, its achievements overshadowed by political debate over the refusal by Ankara to allow Greek Cypriot ships to dock at Turkish ports, which led to the EU punishing Turkey by suspending eight accession chapters in December.

Turkey has ended 25 years of runaway inflation and is working with the International Monetary Fund to rein in its current account deficit, which was expected to reach 8 percent of gross domestic product in 2006.

"Inflation has come down from one of the highest rates in the world, from 80 percent to under 10 percent, and it is also the fastest growing OECD country, growing at 7.5 percent a year over the past five years," said Serhan Cevik, economist for the Middle East and Africa at Morgan Stanley in London, referring to the Organization for Economic Cooperation and Development. "That is a very impressive figure for an oil-importing country."

Fiscal and monetary policies implemented under the prime minister, Recep Tayyip Erdogan, who came to office in the wake of a financial crisis in 2001, have begun to normalize an economy once considered heavily distorted. That economy already is well anchored in Europe: Turkey does about 53 percent of its trade with the European Union.

Much of the impetus for achieving EU economic standards stems from sheer demographics. As the rest of the EU grays, half of Turkey's more than 70 million people are under 30 years old; the average age is 28. Since 1970, the population of Istanbul has swollen from one million to a teeming 15 million. Fueling that is a rural exodus. The number of Turks working in agriculture — still the country's biggest employer — has shrunk to 28 percent over the past five years, an improvement over the 32 percent in Romania, though still far from the 5 percent average in the EU.

But the Turkish economy still faces daunting challenges. Economists say that it needs to establish a track record of escaping the boom-and-bust cycles so characteristic of emerging markets, while transforming itself into a broad- based economy that can meet the demands of a youthful population hungry for opportunity.

"The really big challenges are the regional differences within the country — the income gap between the west and the southeast truly is much bigger than anything you see in the EU," Barysch said. "And there are huge labor market problems: Unemployment is 10 percent, but only a quarter of Turks have a normal, salaried, full-time job."

Economists say that with a third of the population working in an inefficient farming sector, education needs to be restructured so that people can participate in more productive industries, like the booming automotive sector in the region of Anatolia, helping to narrow the income gap between rich and poor.

"Turkey is moving from low value- added production to high value-added production, and for this it requires a new set of labor skills," Cevik, the Morgan Stanley economist, said.

Many who move to the cities seek work in manufacturing or services.

Kursad Tuzmen, the Turkish trade minister, said that the country produced nearly 50 percent of all the televisions sold in Europe, and that auto manufacturing was growing, although textiles remained the biggest Turkish industrial sector.

But many more Turks drift into the huge parallel economy that absorbs an estimated 50 percent of the work force because of crippling Turkish payroll taxes which average of 43.4 percent, higher than in Sweden.

The CIA World Factbook, said the estimated per capita income in Turkey was about $8,400 in 2005, better than the $8,100 in Romania but still less than a third of the EU average of $28,100.

Other economic distortions remain. The government derives 70 percent of its income from indirect taxes dependent on transactions and consumption, rather than from capital gains; in the EU, 70 percent comes from capital gains.

But economists see room for optimism in the way Turkey handled its currency wobbles in May and June last year, when worries about higher U.S. interest rates sparked an exit of capital from emerging markets which hit Turkey particularly hard. The central bank raised interest rates sharply without political interference, and the market quickly regained confidence.

"This was a huge step forward," Barysch said.

Still, Turkey has yet to establish the sort of track record that took Israel, another volatile emerging market that has stabilized, a decade to build. "You have had 30 years of volatility and memories don't disappear that quickly," Cevik, of Morgan Stanley, said. "It will take a while to convince people that things have changed."
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