Turks Give Erdogan New Powers

Turkey’s President Recep Erdogan was awarded a slate of new powers following approval of a referendum on Monday. The vote was closer than expected, but still brought accusations of fraud. Erdogan’s victory speech called into question Turkey’s relationship with Europe, and whether the country is still interested in joining the European Union. Given that several of the President’s proposed legislative changes would be at odds to EU regulations, this scenario is becoming less likely. Erdogan answered concerns about the fairness of the referendum vote by saying that the Organization for Security and Cooperation in Europe (OSCE), the monitoring group invited to oversee the referendum process should “know its place”.

Erdogan celebrates win In Turkish referendum.

Turkish Referendum Passes with Bare Majority

While the early polls were suggesting a 60-40 split in favor of the referendum, once the polls closed, this lead steadily fell until the result was neck and neck, at 51-49. Yet some of the ballots have been called into question. According to the Board of Elections, proper procedure called for all ballots to be stamped prior to being accepted. However, about halfway through the voting process, the Board decided to accept ballots that were not properly stamped and sealed, which the opposition has argued is rules for throwing out the results. There is a 48 hour window for challengers to appeal the election results.

Referendum Grants Turkish President New Powers

The referendum came about as Erdogan sought to consolidate power previously split between Turkey’s President and Prime Minister. Following its passage, the majority of power rests in the office of the President, who now has the ability to suspend parliament and enact laws. The new guidelines are expected to go into effect in 2019, and could conceivably allow Erdogan to remain in office until 2034. The opposition says that this creates an unfair playing field akin to a dictatorship. As proof of the President’s disdain for democracy, the critics have pointed out that tens of thousands of people were jailed in the days before the election, while an additional 100,000 government workers lost their jobs due to expressing opinions unsympathetic towards Erdogan.

Trump Continues to Treat Turkey as an Important Ally

Shortly after the referendum results were announced, President Trump called Erdogan in part to congratulate him on the vote. The prearranged call was primarily intended as a recap of America’s recent actions in Syria, where Turkey has served as an important ally in the fight against Islamic State. The genial tone of the call and Trump’s unwavering support make clear that the West will have to make allowances based on political realities when dealing with the Middle East. Supporters of democracy don’t like Erdogan. Still he is relatively moderate for the region.

Europe Grows Wary of Erdogan’s Quest for Power

In contrast to the United States, European leaders have called upon Erdogan to reach out to the half of the country that voted against the referendum. Germany’s Angela Merkel said that the close result of the vote required the Turkey’s President and government to act responsibly by creating a dialogue between Erdogan and opposition groups seeking increased rights. The Foreign Ministries of both France and Belgian noted that Erdogan’s call to reinstate capital punishment was at odds with a desire to join the EU.

Given the murky nature of the vote and the constitutional changes brought about by the referendum, Jean-Claude Juncker, EU Commission President, says that he expects the results will lead to a revisiting of the membership talks which have been ongoing. The EU and Turkey had already experienced considerable friction during the campaign process, with several Turkish ministers being banned from campaigning for the referendum in EU member states. So far, Erdogan has shown little drive to listen to these complaints.

How Will Turkey’s Referendum Affect Trading?

The U.S. and Turkey will improve their relationship now that the vote is over. Trump needs allies for his continued attack on IS. Given the necessity for pragmatism, expect the dollar to rise against the euro if the EU continues to call for Erdogan to change his stance in order to capitulate to the Turkish opposition. With Turkey being a critical junction between Europe and Asia, countries that are willing to work with Erdogan will reap the benefits of reduced tariffs. Look for indices like the DOW and S & P 500 to go up if the relationship between Turkey and the U.S. continues to improve. Additionally, the consolidation of power will help make the region more stable, shifting investors away from gold.