Identifier
Created
Classification
Origin
05ANKARA2975
2005-05-26 04:12:00
CONFIDENTIAL
Embassy Ankara
Cable title:  

BABACAN NAMED TURKEY'S EU NEGOTIATOR

Tags:  PREL PGOV ECIN ECON EFIN TU 
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260412Z May 05
C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 002975 

SIPDIS

TREASURY FOR INTERNATIONAL AFFAIRS - MMILLS AND CPLANTIER
NSC FOR BRYZA AND MCKIBBEN

E.O. 12958: DECL: 05/24/2010
TAGS: PREL PGOV ECIN ECON EFIN TU
SUBJECT: BABACAN NAMED TURKEY'S EU NEGOTIATOR


Classified By: Ambassador Eric S. Edelman for reasons 1.4(b) and (d).

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 002975

SIPDIS

TREASURY FOR INTERNATIONAL AFFAIRS - MMILLS AND CPLANTIER
NSC FOR BRYZA AND MCKIBBEN

E.O. 12958: DECL: 05/24/2010
TAGS: PREL PGOV ECIN ECON EFIN TU
SUBJECT: BABACAN NAMED TURKEY'S EU NEGOTIATOR


Classified By: Ambassador Eric S. Edelman for reasons 1.4(b) and (d).


1. (C) Summary: Prime Minister Erdogan announced that
Minister of Economy Ali Babacan will be Turkey's EU
negotiator. Although Babacan is among the most
internationally-savvy Ministers, having long experience
dealing with the IMF and the international financial
community, some observers believe he lacks the political
clout that will be needed to push through EU-mandated
reforms. The long-awaited announcement raises as many
questions as it answers: will Babacan report through FonMin
Gul?
Will Babacan really remain responsible for economic
policy as well as EU negotiations and, if so, how will that
work?
Moreover, with a political mood in the EU increasingly
inhospitable to Turkey's EU candidacy and resurgent
nationalism and buyer's remorse toward the EU in Turkey,
Babacan has his work cut out for him. End Summary.

Babacan Named EU Negotiator:
--------------


2. (C) On May 24, Prime Minister Erdogan announced that
State Minister Ali Babacan would be the lead negotiator for
Turkey's EU accession negotiations. The announcement was
long overdue, given that the December 17 EU summit set a
date for Turkey's accession negotiations, and most observers
expected the GOT to quickly name a negotiator to
begin preparations. Instead, during the ensuing five months,
the GOT seemed paralyzed, with constant rumors of a
cabinet reshuffle, and few significant decisions taken except
those needed to get a new IMF program approved.
(Even those took four months and only happened when markets
scared
the GOT with a correction.) The GOT seems to have
(willfully) misinterpreted EU officials' private advice that
Turkish leaders keep relatively quiet on EU issues
until after the French and Dutch referenda in order not to
risk
stirring up anti-Turkish sentiment in the referendum
countries. The GOT seems to have disingenuously interpreted

this advice to mean Turkey should do nothing, not even name a
negotiator and prepare for the October accession talks.


3. (C) Babacan's name had long been rumored to be among the
leading candidates. In a thin field, Babacan has proven to
be
among the more internationally-oriented and savvy ministers
in the AK Party government. A former Fulbrighter with an
MBA from Northwestern University, Babacan, along with
Foreign Minister Gul, is one of the few ministers who
is comfortable holding meetings in English. Though
his ever-optimistic, and sometimes blatantly-misleading,
public statements have undermined his credibility
with financial markets, over time he has proved himself
as one of the few ministers who truly "owns" the economic
reform program, and has at times clashed with other
ministers, including Prime Minister Erdogan, to push
through the minimum the IMF can accept.


4. (C) The pattern with the IMF, however, reflects
Babacan's major weakness: he lacks political clout. With
the EU acquis requiring across-the-board changes in Turkish
institutions and laws--far more intrusive changes than the
IMF program requires and affecting all ministerial
portfolios--Babacan's track record inspires little confidence
that he will be able to convince the Cabinet to conform to
the EU's requirements.

In the Dark Until the Last Minute:
--------------


5. (C) Babacan had privately denied he was going to be
tapped to be EU negotiator. Indeed, the night before the
announcement, he again told the Ambassador he was not
going to be named EU negotiator and did not want the job.
Some press have also reported Babacan was not told in advance.
Had he known he was about to be named, it seems unlikely he
would have been as explicit in his denials. This adds to
other evidence of Prime Minister Erdogan's and the GOT's
disorganized, last-minute management style, as well as
Babacan,s
outsider status.

Who Will Mind the Economic Store?
--------------


6. (C) The announcement raises multiple questions, and has
revived once again rumors of the imminent cabinet reshuffle
(that never seems to happen). What will Babacan's exact
responsibilities and reporting lines be? Though the Prime
Minister announced he would retain his rank of State Minister
and Babacan,s Chief of Staff confirmed to us press reports
that Babacan will retain his economic portfolio, we do not
see how Babacan could effectively handle both
responsibilities.
It is not yet clear whether Babacan will report to Erdogan
through Deputy PM and FonMin Gul on EU issues. If, as is
more likely, he is eventually replaced on the economic
portfolio,
the leading candidates would probably be even less effective
than
Babacan. Central Bank Governor Serdengecti has told us that
Babacan is the only minister who seems to understand the
need for sustained reforms.


7. (C) There are rumors that Nazim Ekrem, who currently
chairs the AK Party Economic committee, would replace him.
The introverted Ekrem, though an economics professor, is not
fluent in English and is not as smooth as Babacan. His
policy
instincts are nominally market oriented but untested in
a serious policy-making environment. He lacks political
clout. The other economic heavyweights in
the cabinet, Finance Minister Unakitan and Deputy Prime
Minister Sener, lack Babacan's willingness to accept
economic reforms. Both have recently demonstrated this:
Sener with his public statements that foreign bank
ownership should be limited; and Unakitan shrugging off
potential IMF concerns about a briefly floated GOT proposal
for and amnesty for delinquent Social Security premia
despite the amnesty's apparent contravention of the
just-signed Letter of Intent. In both
Sener and Unakitan's cases, there have been other, earlier
indications that they at heart they are not economic
reformers.

Pushing the Panic Button?
--------------


8. (C) The timing of the Prime Minister,s announcement,
apparently without having informed Babacan, suggests the
GOT moved precipitously to counter the increasingly
negative news flow on the prospects for Turkey,s EU
candidacy
with what was likely to be considered a market-friendly
announcement. The morning of the announcement, the
newspapers
were full of Prime Minister Schroeder's call for early
elections,
raising concerns that a CDU government might take power in
Germany
that will oppose Turkey's EU candidacy. Combined with the
polls suggesting both French and Dutch voters may vote no
in next week's referenda on the EU constitution,
Turkey's EU accession prospects are looking considerably
dimmer than they did before. Adding to the gloom was the
biggest local economic story: Cukurova Group's
surprise termination of its deal to sell its shares in
Turkcell
to the Nordic group Telia Sonera. This had been
considered a flagship deal in terms of bolstering Turkey's
very
weak track record in attracting foreign investment.
Not surprisingly, already worried markets sold off on May 23,
as
these stories broke, with the Istanbul stock
exchange down 4.66 percent on the day. Folowing the
announcement
about Babacan on May 24, the markets rallied momentarily
before
continuing their sell-off. However most of the business
community,s comments on the Babacan appointment have been
positive.
The sell-off may not be over, however: if the polls are
correct,
and the French vote no, Turkish markets are likely to decline
further.

Erdogan's Calculation:
--------------


9. (C) In terms of internal politics, Erdogan appears to be
calculating that, by appointing a Gul protege, he weakens his
biggest rival Gul's hand, since Babacan's political
prospects
-- and value as a Gul ally -- will erode quickly as he is
obliged
to sell tough EU views and demands to the Cabinet and
public. In this regard, and given Erdogan's visibly
dismissive
attitude toward Babacan, the appointment serves Erdogan's
internal political struggle with Gul. In any event, with
minimal clout in the Cabinet, and having made no secret
that he was trying to avoid the assignment, Babacan faces a
grueling and lonely road ahead.

A Herculean Task:
--------------


10. (C) Babacan will have his work cut out for him. Not only
has Turkey lagged in preparing for its EU accession
negotiations, with only a few months before they begin,
neither the mood in the EU nor the mood in Turkey are
conducive to a good start to negotiations. It will be a
Herculean achievement if Babacan is able to negotiate
between the Scylla of anti-Turkish sentiment in the EU, and
the Charybdis of resurgent anti-western xenophobia in
Turkey. At the same time, his attention to IMF issues will,
at the very least, be diverted.

EDELMAN