The European Commission has today released its long-awaited progress report on Turkey’s bid to join the European Union. The report does not contain many surprises and, as such, should have no long-lasting impact on the Turkish markets. However, it is quite critical of Turkey, and, obviously, negotiations between the EU and Turkey are not progressing as smoothly as one might have hoped for - a fact not to be ignored by investors in the Turkish markets.
Especially, Ankara’s failure to open Turkish ports to ships from Cyprus (an EU member) seems a key stumbling block in the negotiations, and is also a key point of criticism in the progress report. While this is hardly a surprise, we got a bit of news as the EU Commission gave Turkey until December 14/15 (next EU summit) to open its ports to Cyprus. Hence, the markets now have a new date to focus on. This could spur more nervousness in the Turkish markets, but for now we don’t have a lot of new information to move on.
To conclude, today’s report is not much of a surprise to the markets, and it will not deadlock the negotiations. On the other hand, the EU obviously is beginning to lose patience with Turkey, and we should expect rhetoric, especially from the French, Cypriot and Greek governments, to become more hostile. Furthermore, Turkey can probably not count on the Scandinavian governments to deliver the same degree of support that they used to. Hence, the EU negotiations will remain a key market topic, and even though the worries until now have not moved Turkey significantly, we would certainly not rule out the possibility that this could change in the near future. Note also that Germany is due to take over the EU presidency from Finland in January and that Chancellor Merkel likely will be less willing to keep the negotiations afloat than the Finnish have been. Merkel is a long-time opponent of Turkish EU membership.
