What do the Eastern European tensions mean for Greece and Turkey’s economies?

Nathan Wiesheu (20 September 2020) For years Turkey and Greece have been at political dispute over a variety…

Nathan Wiesheu (20 September 2020)

For years Turkey and Greece have been at political dispute over a variety of issues, and these tensions arose again in August following a clash of navy ships in the Mediterranean. What does the latest clash mean for their respective economies in the already tumultuous year for economics that is 2020?

Modern Turkish and Greece divisions originated around Cyprus, with the Greeks supporting the Cypriot belief that they own the entire island; but Ankara sees itself as the guardian of the northern, Turkish-speaking, part of the island. This followed the conflict in 1974 when a Greek backed Cypriot revolt overthrew the Cypriot government and took control. However, the Turkish government reacted poorly to this, resulting in an attempted invasion. In the end, Turkey kept the northern sector of the island while Greek Cypriots inhabited the majority. The tensions from this conflict linger to this day with Greece and Turkey still not allies.

Furthermore, there are significant border disputes between the two countries with Greece having many islands located just off the coast of Turkey. Maritime border laws dictate that a certain proportion of sea surrounding the island belongs to the island’s owner, but this massively encroaches on Turkey, leaving them with a depreciated maritime border, given the country’s landmass.

These border disputes were compounded by the recent gas discovery in the Mediterranean, one that is of great importance to both Greece and Turkey. A huge gas field was found in the eastern Mediterranean and subsequently led to the formation of the EastMed Gas Forum featuring Egypt, Israel, the Palestinian Authority, Jordan, Greece, Cyprus, Italy and Egypt. This meant that Turkey missed out on a lucrative opportunity to gain from a gas field located very close to them. These tensions reached a climax on August 12 when a Turkish geological surveying ship went into Greek waters, which they believe to be their own, in search of gas. Three Greek military vessels followed, with five Turkish warships in tow. The incident culminated in a Greek vessel smashing into a Turkish vessel which the Turks claim to have come about from prevocational Greek movements.

This recent flare-up in tensions could result in severe issues for both economies but in particular that of Turkey. Turkey is facing a political dilemma with their current president, Recep Tayyip Erdogan, an extreme nationalist, falling way down in the polls and in need of serious action to lead to his re-election. Some fear that by triggering tensions or even conflict with Greece, he may draw on the nationalism of his citizens which would lead to more votes for him. However, a conflict would be of no benefit to anyone, given the toll that the Covid-19 pandemic has had. With countries already running huge deficits, spending more on any conflict would throw serious doubts on the economic stability of either country. Although it is also possible that President Erdogan may try to use the easing of tensions as a ploy to gain further votes. 

The loss of access to the nearby natural gas is a serious blow for Turkey’s economy, with countries across the world looking away from both oil and gas. However, Turkey recently announced the discovery of a smaller gas deposit in the Black Sea, which does limit their loss as a country. For Greece, this discovery gives its economy a boost given the losses from the ongoing pandemic. Still, the threat of conflict is hugely damaging, and something which Athens will seek to avoid at all cost. Greece does find themselves in a better position given their inclusion in the EastMed Gas Forum, which will provide them benefits not just in the short-term but potentially well into the future.

Turkey is at a definite loss from the recent conflict, illustrating the desperation and vulnerability of President Erdogan’s political standing following his drop in the polls and Turkey’s exclusion from the EastMed Gas Forum. Neither of these countries would welcome conflict, and the focus on economic recovery and stabilisation from the pandemic should take priority over any geopolitical tensions.

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