Many of you have written us asking for a video
about what is going on in Turkey. And believe me, the situation is quite dangerous. And… in case you were wondering… NO, this time, Donald Trump is not to blame for this. In fact, the US sanctions are just the tip
of the iceberg. An iceberg that could wreck many many ships. And yes, the ships in this case, are the European
banks. Just look at this map. Turkey is a bridge between Europe and Asia. We’re talking about a country with a population as big as Germany’s. A country where Europe has been investing
for decades: companies, factories and, of course, lots and lots of
loans. Want an example? Here you go. Have you ever heard of the BBVA? It’s the second biggest bank in Spain. Well, Turkey is the third biggest market for
this bank. In other words… when the Turks sneeze a
lot of Europeans end up with a cold. Aren’t scared enough yet? Well, listen up… “Turkey is one of the most important NATO
members. After America, they have the biggest army
in the alliance. And they are one of the few countries with
a Muslim majority and a secular constitution. At least… so far.“ Yes, you heard this right. We said ‘so far’. The truth is, the Turkish president, RECEPT
TAYIPP ERDOGAN… well, that man, he is not a big fan of secularism. Erdogan is something like the ANAKIN SKYWALKER
of politics. He started out as the good guy in the movie but… we all know that, eventually, he will
fall to the dark side… In this case, the dark side is a mix between religious fanaticism and good old
populism. Erdogan likes to portray himself as the defender
of the average man. Those turks that live in rural areas like KONYA, completely outside of the glamour
of ISTANBUL. The turks there don’t have amazing salaries and they maintain a traditional lifestyle. And… who do they need to be protected against? Well, of course, the Western conspiracy that wants
to end Turkey! This explains why news like this is so important
for Erdogan’s narrative. U.S. Imposes Sanctions on Turkish Officials
Over Detained American Pastor Nonetheless, this is just the tip of the iceberg. First of all, the actual reason behind the
US sanctions is not the pastor but the military and situations
with the Kurds in Syria. But that’s another story for another video. The truth is Turkey’s crisis has been going
on for three years already. And this isn’t just a political crisis! In fact, the biggest problem is economics. We’re talking about a small scale Venezuela… at the very gates of Europe. But now the question is… what is going on
in Turkey? What happened in this country to cause them
to fall to the dark side of economics? Do we really have reasons to be scared? Today we are going to answer all of these questions but before we do, let’s
take a look back at history. ERDOGAN, THE SAVIOUR Turkey is famous for many things: Saint Sophia,
kebabs and… inflation! Since 1970, and until the year 2000, Turkey had sky high inflation rates. Many years they even surpassed the 100% mark. This means that, from one year to the next, prices would double. And what happens when you have so much inflation
and you live so close to wealthy European countries? Well… you become a cheap labor Disneyland! Companies like RENAULT of PEUGEOT built lots
of factories in Turkey. And I know what you’re gonna say now… ‘OK, Simon, but this is good news for a
country, isn’t it?’. Well, yes… and at the same time, no. For example, in the 60s, Renault opened a
factory in BURSA, a city in northern Turkey. Manufacturing cars in Bursa was very cheap for Renault. Since the Turkish lira was devaluating year
after year, Renault had to pay lower salaries. Nonetheless, once they got the money from
selling those cars… Do you think they kept that wealth inside of the country? Of course not! If Turkish money was losing value so fast,
the smartest thing you could do was take the money
out ASAP. This is why Turkey seemed doomed to stagnation… Until the year 2003. That’s the year when Erdogan came to power. His main goal was to keep inflation below
10%. He created a new currency, the New Turkish
Lira. A currency far more stable than the previous
one. And as soon as inflation was at hand, the
Turkish economy made a 180 degree shift. All of a sudden, many European companies started
investing in Turkey. This included banks. One of them, the Spanish BBVA, invested on this country
big time. So much so that now Turkey is their third
largest market. So in the 2000s, Turkey was in fashion. Rule of law and monetary stability meant that
companies could reinvest in the country. So in less than 10 years, your average Turkish
worker went from making 800 USD a month to making more than 1200 USD a month. But not only that! In those first Erdogan years, new industries
like tourism developed. Turkey went from 13 million tourists to 39 million. And what about Turkish companies? Well… have you ever heard of TURKISH AIRLINES? In the 90s, Turkish Airlines was just another airline carrier. But since they could now reinvest their profit,
they ended up becoming an aviation juggernaut. And, believe me, they are not an isolated
case. If there’s one great example of the Turkish
Miracle, it’s YILDIZ HOLDINGS. This company started out as a family owned bakery and now they’ve already
bought European brands like GODIVA CHOCOLATES or UNITED BISCUITS. Today, YILDIZ HOLDINGS is the World’s third
biggest company in the food sector. So in other words… the Turkish economy was
ON FIRE. And since the economy was ON FIRE, nobody
seemed to care about the fact that Erdogan had spent
some time in prison for being part of a radical Group. At the end of the day, the country was still democratic
and Erdogan was the arab rockstar. The chosen one to bring the Islamic world to the… bright side. Back then, Turkey wanted to be European. They were just about to become a member of
the European Union. As a fun fact, in 2003 they won the Eurovision
song contest. But, you know, the negotiations to become
a EU member extended over time… and What happened? Well… Erdogan lost his patience and he said… Oh! So am I not cool enough to join your club? Well you know what? I’m tired of being so Western, having separation of powers, secularism and I-don’t-know-what-else. All of that is over. Now is the time for… THE NEW ERDOGAN-O-MICS In the last 5 years, things started to sour
for Erdogan. First, he was personally involved in many corruption cases. But worst of all was news like this. Istanbul Ataturk airport attack: 41 dead and
more than 230 hurt DAESH attacks have brought Islamic terrorism
and insecurity to the streets of Turkey. And the damage to the tourism industry was immediate. In just 2 years, tourism income has fallen
by 25%. And this is specially worrying given that tourism accounts
for 13% of the Turkish economy. But that’s not all… Foreign investment has fallen by half. And you might wonder… why? Well… there are two reasons for this. The first one is the lack of a chance that
Turkey is going to become part of the European Union. The second is Erdogan itself. Yes, my dear viewers, Islamic radicalism is
not just a danger politics wise. It is also the worst for economics. Turkey’s Erdogan calls interest rates “mother
of all evil”; lira slides According to Erdogan, the so-called ‘economic
orthodoxy’ is a Western invention that will destabilize Turkey. This borrowing money with interest thing goes
against Islam. So, he went to the Central Bank and forced them to lower the interest rates and
start printing money. And what if the Central Banker doesn’t want to do that? Well, these are Erdogan’s words. “the central bank can’t take this independence
and set aside the signals given by the president.” – Erdogan speaking to Bloomberg So, in other words, after the failed coup
d’etat of 2016, Erdogan has finally fallen to the dark side. He thinks he can manage the economy at his will. And every rational critic against his economic
policy will be seen as a Western conspirator. He even named his son in law as Finance Minister. This new economic paradigm is not a free market or social democracy…
this is the new Erdogan-o-mics. Do you need Money to pay for your spending? You print it! Are Turkish companies complaining? You flood the market with cheap credit! In less than 2 years, Turkish Banks have given
more than 50 billion dollars worth of loans. And all of this with almost no interest. The result? A crazy devaluation of the Turkish Lira. “In the year 2014, the American Dollar was
Exchanged by, more or less, 2.5 liras. By the time we make this video, the exchange rate was more than
6 liras per 1 dollar. This means that the Turkish lira has one third of the value it had before. And this explains why inflation rates rose
to 11.9% in 2017.“ OK, OK! I know what you’re thinking… 11.9%? That doesn’t sound so bad, right? In Argentina, for instance, they have 3 times more inflation. The truth is that you need some time between
a devaluation and the rise in day to day prices. So who are the first ones suffering from the
effects of this devaluation? Well… those would be the companies that had loans
in foreign banks. And there are more than a few! Do you remember YILDIZ HOLDINGS? That food industry behemoth? Well, here you go… Turkish owner of Godiva chocolate to restructure
$6.5 billion of debt Estimations say that foreign debt from Turkish
companies surpasses 300 billion dollars. For a better understanding, this is the same amount of
money spent in all of the bailouts to Greece. And meanwhile, the inflation rate is starting to grow little
by little. This year, 2018, it has already reached 15%. And all the non-governmental estimations say that,
at the beginning of 2019, it will rise to 22%. Turkey Cut Deeper Into Junk as S&P Sees Recession
Next Year Add to this the sanctions imposed by Donald
Trump. We will talk about the reasons behind the
sanctions in another video. Here we want to focus on the economics. Because in the middle of all this, there is another player with a lot to lose: The European
Union. Banks like the Spanish BBVA, the French BNP
Paribas or the Italian UNICREDIT have lent more than 190 billion dollars to Turkish companies. So far, BBVA has already lost half of the
value of those investments. So you can already imagine the big gap that
a Turkish collapse would leave. So far, Erdogan has said he won’t ask for
a bailout from the International Monetary Fund and he will not raise capital controls either. But… can he stick to his words? We just don’t know. All we know is that both Qatar and China have already promised
to help the Turkish economy. But it is still too soon to see what will happen. So now the question goes to all of you… Will Turkey become the European Venezuela? Can this crisis trigger a bigger crisis all
across Europe? Could Erdogan pull everybody to the dark side? Please leave your answers in the comment section
below. And also don’t forget to check out RECONSIDER
MEDIA, the podcast that provided the vocals in this episode that were not mine. And remember that we publish brand new videos
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up and, as always, I’ll see you next time.