No one is sure if the panic will spread beyond Turkey's borders, but within the country the economic situation threatens the political stability of a NATO member that for the U.S. is a valuable buffer against fundamentalist Islamism in the region. Not to mention another black eye for the U.S.-dominated International Monetary Fund, which bailed out Turkey last year and seems in danger of losing its investment. TIME stringer Andrew Finkel, who works out of Istanbul, comments on the developments.
TIME.com: Is this primarily an economic crisis or a political one?
Andrew Finkel: It's both a financial crisis that was touched off by politicians, and one that the political establishment seems incapable of dealing with.
What started this, essentially, was a row between Turkey's prime minister, Bulent Ecevit, and its president, Ahmet Necdet Sezer. Ecevit is a classic Turkish machine politician, who's used to looking the other way at corruption in order to hang on to power. Sezer, meanwhile, was put up by the three-part coalition that was in power as a puppet, someone who would go along to get along. But like a Supreme Court Justice who doesn't vote the way you want, he's turned into a reformer and a real thorn in the side of those in power.
This currency crisis started when Sezer accused Ecevit of being soft on corruption at a meeting Monday of Turkey's National Security Council and pushed a copy of the Turkish constitution across the table at him. One of Ecevit's aides threw it back at Sezer, and Ecevit stormed out of the meeting right into the arms of the waiting press pack, and snapped, "This is a serious crisis."
That was taken as a sign that Ecevit's fragile coalition he was elected with only 22 percent of the vote was falling apart, and the financial markets immediately went wild. The stock market and the currency, the lira, both crashed, and within a day the central bank had to lift the dollar peg on the currency because it couldn't afford to support it anymore. Of course, if Ecevit had kept his mouth shut, this wouldn't have happened.
That seems like an extreme reaction by the markets to a political dispute.
Well, Turkey was on a short leash already. The IMF has already provided a $11.4 billion bailout package, with the condition that Turkey reform its banking system. This was a sign that reform and the political stability that's needed to pull it off could be in serious trouble.
The banks in Turkey are largely state-owned, and they serve as sort of a paymaster for the political machine. Debts are routinely written off as political favors, and the operating loss for these banks is staggering because of it. Turkey's financial stability is seen by the markets to depend on getting the banks under control, but of course in the Turkish government this is difficult medicine to swallow.
Should we expect any major political upheaval?
Down the road, I guess there's bound to be some political fallout. The last major devaluation was in 1994, and a year or two later an Islamic party was elected to Parliament in desperate times, people turn to desperate solutions but there won't be any mass resignations or anything like that.
With Turkish politicians, the harder they're pressed, the harder they dig in. No one resigns out of accountability here. In fact, no one ever resigns for any reason whatsoever.