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What if Turkey collapses?

It's not outside the realm of possibility. Turkey's currency is in free fall. Inflation is at 15% and climbing. The Turkish economy could enter a recession. The US has imposed economic sanctions on the country because President Recep Tayyip Erdogan refuses to hand over an American preacher who has been jailed there.

Lots of things are going wrong in Turkey, all at once.

As this map shows, Turkey may not be important economically in terms of contagion to the rest of the global economy but it sure is important strategically and militarily.

Turkey is the bridge between the democratic, peaceful West and the war-ridden dictatorships of the East.

How strong do we want this bridge to be?

Countries ranked by the percentage of their exports that go to Turkey. Credit Suisse

If you are not confident about where Turkey is on the map, you are not alone. It's only when you see Turkey's borders that you realize why everyone is freaking out about the lira crisis.

On its Western flank, Turkey borders Greece and Bulgaria, Western-facing members of the European Union. A few years ago, Turkey a member of NATO was preparing the join Europe as a full member.

Turkey's other borders face six nations: Georgia, Iran, Iraq, Syria, Armenia, and Nakhchivan, a territory affiliated with Azerbaijan. Five of those are involved in ongoing armed conflicts or outright war.

Turkey is the thing that has physically prevented the Islamic State terrorist group from rolling into Greece. It keeps the Syrian war inside Syria. It prevents the Russians from rolling back into Bulgaria. And it deters the Iraqis, Iranians, and Kurds from escalating their various conflicts northward into Europe.

That's the reason Turkey has the largest standing army in Europe. We need Turkey to be strong and stable, in other words.

That's why two recent moves by Erdogan are so chilling:

The lira has lost 45% of its value against the US dollar this year.Yahoo Finance

In the immediate term, Erdogan's economic illiteracy is particularly worrying: Turkey's biggest, easiest weapon to contain its crisis is higher interest rates.

In principle, when a central bank raises interest rates, it sells bonds, taking in currency from those sales, and thus makes its own money more scarce and more valuable.

High rates would also encourage savers to put money into Turkish banks. That is exactly what Turkey needs to prevent a run on its central bank and a wider economic collapse. And it is the one tactic Erodgan bafflingly doesn't believe should be used.

He is condemning his nation to an inflation spiral that will, unchecked, look like the hyperinflation of the Weimar Republic.

From a strategic or military point of view, Erdogan "looking for new friends" is even more worrying. Turkey suddenly has a lot in common with Iran, Syria, and, across the Black Sea, Russia: They are all the targets of US sanctions.

Do we really want Turkey to turn toward Iran, Syria, or Russia? Because that's one potential outcome if the West cannot find a way to keep Erdogan inside the fold.

What is the endgame here, if Erdogan doesn't reverse course on interest, or if the US maintains or increases its sanctions?

The worst-case scenario is a Turkish government that cannot pay the army that controls its borders, in search of "new friends" to bail it out.

Thus the lira continues its plunge.

Read more from the original source:
What if Turkey collapses from lira crisis? Iran, Russia ...