Turkey can be the spark that breaks the Euro

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Just imagine, if the pound dropped from being worth one and a half dollars ($1.50) to 15 cents. Your coffee in New York which had cost $3, or £2, now costs $30, just one month later. Thirty dollars for a single cup of coffee, also means that anything imported also costs ten times as much.

This is what happened to Indonesia during the Asian crisis in 1998. The Indonesian Rupiah went from Rp 2000 to Rp 20,000 to the dollar in little over a month.

And this is what happens always when there is a tiny door and everyone wants to get out at the same time. There is simply no bid. No one will buy from you the currency that you wish to sell.

This is what is happening, right now, to the Turkish Lira. 

The Turkish lira was about $3.00 in 2017. All during 2018, it has been creeping up. By April it was $4.00. By August 1st, it was $5.00. By Friday night it was $6.5, after having moved 16% on Friday alone. You can see the acceleration. The clever money was getting out. The speed of the moves was getting bigger. Who knows where it will open after this weekend. 

On Thursday, this excellent article appeared in The Telegraph, well worth reading.
By the time the article had even appeared in the paper, another 10% move had happened. 

On Friday total panic descended.

What happens during these crises?

The first thing that happens is that banks cannot fund their overnight demands and have to bid higher and higher amounts to find funding. Short-term interest rates rocket, sometimes to hundreds of per cent. Local people start to hoard dollars. No one wants to hold the currency. Why would you if you are likely to 10% poorer by lunchtime. No one cannot import anything.
No one wants to contract anything with a currency or price component, longer than about tea-time.

For a time, prices are completely out of sync, like that cup of coffee in New York. Tourists will find that they can buy things which should cost pennies for pounds. People start panicking. Shops empty. New goods coming into shops, especially imported ones, cost twice or three times as much and so on.

The economy implodes. 

What is different here, compared to the 1998 Asian financial crisis, is that the Asians, in general, wanted to be part of the world economy, they wanted to sort the mess out, they wanted to trade. They were also not a State with a very belligerent leader, like Erdogan, who wants to fight Europe and Trump. Turkey is dangerously part of Nato. Turkey can blackmail Europe with refugees. Turkey owes an absolute fortune to Italian and German banks.

Turkey can be the spark that breaks the Euro.


Catherine Blaiklock, UKIP Eastern Regional Chair