Time To Smell The Coffee

You can smell the coffee now: this is the opinion of Morgan Stanley’s Serhan Cevik referring to the nearest thing to an ’economic miracle’ that we have in or around the EU at the present time:

”It’s time to smell the coffee — Turkey’s disinflation process is not a temporary phenomenon. Though currency movements play a notable role in driving inflation mechanics of highly dollarised economies, disinflation in Turkey has not been just a by-product of exchange-rate valuation. We believe that it is unfair to take currency appreciation for granted and overlook fundamental factors driving both exchange-rate and inflation dynamics. First, the favourable pass-through effect is a result of fundamental improvements such as a rebalancing of residents’ portfolio allocations and productivity-driven export growth. Second, monetary discipline assisted by fiscal consolidation and structural reforms has played a critical part in improving institutional credibility. Third, productivity gains that have resulted in a remarkable drop in unit labour costs help lower the rate of price increases. And last, but not least, economic slack as manifested by the cumulative output gap and labour-market developments has accelerated the pace of disinflation.”

But if this is how things look to some (even if the looking is done not from Turkey but from Serhan’s London window) this is not the way they seem to EU single market commissioner Frits Bolkestein:

Turkey should be kept outside the European Union to act as a “buffer” protecting Europe from Syria, Iran and Iraq, according to Frits Bolkestein, the EU single market commissioner.

Mr Bolkestein argues that the former Soviet republics of Moldova, Belarus and Ukraine should also be excluded, to insulate Europe from Russia.

His views come in a new book, The Limits of Europe, in which he warns that a geographically overstretched Europe would become “little more than a glorified customs union”.

The Dutch liberal is one of the most vocal sceptics of Turkish membership among the 20 EU commissioners who must recommend in October whether to start accession talks with Ankara.

However, a majority on the Commission is expected to approve the Turkish bid, provided Ankara continues its reforms and helps to reunite the island of Cyprus.

Germany’s Christian Democrats, the conservative opposition, are among those campaigning to exclude Turkey from the EU, while many French politicians are sceptical or hostile. Valery Giscard d’Estaing, who chaired the European convention, said in 2002 that Turkish membership would mark “the end of the European Union”.

The issue is expected to be one of the most politically sensitive in the European parliament’s June elections.
Source: Financial Times
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By the way, astute readers of last Friday’s post will once more notice how in Turkey too ’disinflation’ is accelerating nicely.