How Can Turkey be Part of the EMU?: Turkey's Economic and Monetary Integration into the EMU and the Analyses of Macroeconomic and Institutional Factors by Export-Led Growth

Abstract

Turkey became an EU member candidate in 1999, and its economy achieved greater stability in the 2000s, compared to that observed before the 2000-2001 economic crisis. Nevertheless, it remains unclear whether this performance could help Turkey become a member of the economic and monetary union (EMU), following EU membership. Between 1995 and 2002, Turkey experienced severe infl ation, at rates highest among the countries analyzed in this study. It also experienced macroeconomic instability as per the Maastricht Criteria. After 2002, Turkey successfully met the criteria regarding ratios of government deficit to gross domestic product (GDP) and gross government debt to GDP. However, certain persistent problems could create economic instability if Turkey were to join the EMU. Turkey's infl ation rate is higher than the limit established by the criteria; therefore, Turkey should follow a stronger anti-infl ationary policy. In doing so, wage growth should decrease and keep pace with the productivity growth of export goods; this would ameliorate the disparity between wage growth and productivity growth of non-tradable goods, and the over-valued Turkish lira should come to balance with purchasing power parity (PPP).