On Friday morning, the lira hit another record low, plunging to as far as 6 against the U.S. dollar. According to Viraj Patel, foreign exchange strategist at ING, there’s “limited scope for a EUR/USD rebound from the short-term.”
“which said, during the sharp lira sell-off This particular morning, the spillover into the euro was limited, implying which the euro contagion effects may be more acute in addition to muted than initially feared. This particular may hold for the time being unless the implications for the European banking sector deteriorates materially,” he said in a note.
However, the economic turmoil in Turkey could have some other consequences for the euro zone. The 19-member area runs a trade surplus with Turkey, having exported 63 billion euros ($76.2 billion) last year alone. Thus, if Ankara loses economic power to purchase foreign goods, there could be a direct impact, even if modest, on euro zone growth.
Perhaps, more importantly, the European Union (EU) relies heavily on Turkey to contain the flow of migrants trying to reach Europe.
“A deep Turkish recession could lead to more migrants leaving Turkey for the EU. Currently more than three million Syrian refugees are living in Turkey,” Hesse warned.
The high inflow of migrants in addition to refugees has been a contentious point for European leaders, with some publicly refusing to receive them. At the same time, the increased presence of migrants in addition to refugees across Europe has led many citizens to vote for more extremist in addition to radical parties, which could become a big headache for mainstream parties ahead of fresh European elections next year.
“Despite disputes between Turkey in addition to the EU on many issues, the EU features a strong interest in a stable Turkey,” Hessen said.