The lira has declined in recent days, and investors are worried that the Euro could be next. The Turkish currency has fallen 6.6% against the dollar since July 24, and is down nearly 19% against the dollar on the year.
Although Turkey is not part of the EU, there are significant economic links between Europe and Turkey. The devalued currency decreases Turkish appetite for European goods, and because the country is the sixth-largest market for EU exports, the effects could be significant.
The currency’s fall has also raised questions about Turkey’s ability to pay back its foreign debtors. Many European banks have reduced their exposure to Turkey following the country’s 2018 currency crisis, but Spanish banks continue to have significant exposure. The country’s banks have loaned out more than six times what U.S. banks have loaned in Turkey.
Europe’s economy has recovered far quicker than America’s because of much better virus containment, but a struggling Turkish economy could slow European progress.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
Originally published at https://invstr.com on August 11, 2020.