Angela Merkel, Germany’s chancellor, arrives at the Eastern Partnership Summit, inside the Europa building in Brussels, Belgium. (Photographer: Dario Pignatelli/Bloomberg)

With Stakes Rising, Merkel Enters the Fray to Calm Turkey Turmoil

(Bloomberg) -- Angela Merkel is reminding Turkish President Recep Tayyip Erdogan that he has a potential ally in Berlin, offering Germany’s credibility to avert a spillover of economic turmoil.

As Erdogan seeks to shield Turkey’s economy from a feud with President Donald Trump, he and the German chancellor spoke by phone on Wednesday to arrange a meeting of both countries’ finance ministers. While Berlin isn’t offering any aid, the conversation reflects the stakes on both sides and Germany’s sway as the biggest economy in Europe.

Germany wants Turkey to avoid a financial meltdown and can’t allow the country to descend into chaos, according to a person familiar with Merkel’s thinking who asked not to be identified. After a war of words over democratic values sent relations to a low point a year ago, Germany is also making an overture by hosting Erdogan for a state visit on Sept. 28.

“No one has an interest in the economic destabilization of Turkey,” Merkel said in Berlin this week.

Germany is Turkey’s biggest economic partner by far, accounting for some 37 billion euros ($42 billion) in bilateral trade last year, including German tourists in Turkey. More than 6,500 partly or wholly-owned German companies operate in the country.

Syrian Refugees

For Merkel, an economic crisis in the NATO ally could put at risk Turkey’s willingness to host Syrian refugees and keep them from moving to Europe. Turkey also ranks 16th among German export markets, ahead of Japan and many smaller European Union countries.

Those ties are prompting warnings by Germany’s business community, including criticism of Erdogan’s attempts to exert control over Turkey’s central bank and his human-rights record.

“There’s the risk of a recession if financial stability isn’t restored,” Joachim Lang, executive director of the Federation of German Industries in Berlin, said in a statement. “Only a stable political environment will gain foreign investors’ confidence.”

In the latest potential source of tension, Turkey arrested a 46-year-old German citizen in its Kurdish region on terrorism charges after he criticized the Turkish government on his Facebook page, according to German broadcaster NDR. The man had been visiting his mother in his native village, NDR reported, quoting his lawyer, Ercan Yildirim.

Nazi Comparison

As Erdogan clashes with Trump over the detention of an American pastor in Turkey, his fraught history with Merkel doesn’t help. Last year, Erdogan incensed Merkel when he likened German authorities to Nazis for blocking rallies by backers campaigning among Turkish voters in Germany for a referendum to expand his powers.

Among the ties Merkel has to keep in mind is Germany’s Turkish community, whose 3.5 million naturalized citizens and dual-visa holders make up the country’s biggest minority. Of those, 1.3 million can vote in Turkish elections.

Relations between Berlin and Ankara deteriorated as Erdogan consolidated power after a failed coup in 2016. Tension escalated after Turkey detained a group of a human-rights activists and jailed a German journalist. Another dispute led Germany to withdraw troops from a NATO air base in Turkey.

“We’re facing big foreign-policy challenges at this time,” Volker Kauder, who heads Merkel’s party caucus in the German parliament, told the Rhein-Neckar-Zeitung newspaper. “Those need to be discussed and for that reason alone, Erdogan is welcome. But we need to talk about all of the problems.”

When the two finance ministers meet, Germany’s Olaf Scholz is likely to tell his Turkish counterpart that any kind of support from Berlin requires “a shift to a credible monetary policy that’s independent, with higher interest rates,” Holger Schmieding, chief economist at Berenberg, said by phone.

While Erdogan’s path to better relations with Europe leads through Berlin, Germany won’t offer anything like the $15 billion that Qatar pledged to invest in Turkey.

“Any help that Germany could give right now would be small compared to the problems at hand,” Schmieding said.

©2018 Bloomberg L.P.