Aug 17 2018

Collapse of Turkish economy may cause shocks in Britain – The Times

Britain, or more specifically the City of London, is by far the most exposed to a collapse in the Turkish economy, Ed Conway, economics editor of Sky News, wrote in the Times on Friday.

Contrary to the conventional wisdom pointing to Spain and Italy as countries that may suffer most from a domino affect of an economic meltdown in Turkey, Conway said that much of the lending from these countries to Turkey was in Turkish lira. 

But Britain has lent Turkish companies most of their short and long-term foreign exchange debt of more than $220 billion, meaning that turmoil in the Turkish economy made Britain and the City of London more vulnerable. 

The Bank of England is aware of the risk and has already taken measures to prevent some potential consequences, Conway said. 

Turkey’s economic problems may not provoke a repeat of the 2008 financial crisis, but may create serious setbacks, Conway said. Moreover, it is only one extreme example of a trend across emerging economies, he said.

The Turkish lira sank as low as 7.24 to dollar on Monday, but measures taken by the Central Bank of Turkey early this week have led to some recovery. But some analysts expect the lira to fall to 8 to the dollar by the end of the year if Turkey refuses to raise interest rates.