The evolution of Islamic Finance. The case of Turkey

12 
 
1.2 Turkey and the European Union 
 
Since the association agreement signed by Turkey and Europe in 1963, EU economic 
relations with Turkey have improved systematically, and today, the country appears 
much more integrated with main European trade and economic networks.  
On a superficial level, the analysis of E.U. politicians about Turkish membership is still 
divided between those who are sceptical and those who are in favour. Religious beliefs 
and geographical position are the main points against the membership, while economic 
and trade considerations are the main points in favour. In any case circumstances are 
much more complex than they might appear. 
In December 2004 the European Council decided unanimously to start accession 
negotiations with Turkey, “407 votes were in favour and 262 against"
8
.  
"The growing scepticism is reflected by the new negotiating framework formally agreed 
by the Luxemburg European Council and endorsed by the European Parliament in 2006. 
While accession is defined as the 'shared objective of the negotiations, the negotiations 
are defined as an open-ended process, the outcome of which cannot be guaranteed 
beforehand"
9
.  
One of the clearest examples of the functional opposition to Turkish membership is 
represented by those raising concern about shifting EU structural funds to Turkey, and 
the massive influence that a Turkish membership would have within European 
institutions. "too big, too poor [Turkey] to join the Union" stated a report of Germany’s 
European Parliament’s Christian-Democratic Party,. 
A document drafted in December 2012 by the European Commission agrees with the  
Luxembourg European Council conclusions of December 1997. However it was the 
Helsinki European Council which once and for all granted Turkey the status of 
candidate. The application would entail fulfilling various requirements in areas of 
common interests: “political reforms, alignment with acquis ⃰, dialogue of foreign policy, 
visas, mobility and migration, trade, energy, counter terrorism and participation in 
community programs"
10
. 
Especially in the field of energy, with a view to Turkey's development as a potential 
energy hub,  the EU and Turkey started their cooperation with a number of important 
energy issues. Moreover, since 1995 Turkey and EU have formed a Customs Union, 
continuing to boost bilateral trade which totalled € 120 billion only in the 2011. “Turkey 
is the EU's sixth biggest trading partner, while the EU is Turkey's biggest. A bit less than 
half of Turkey's total trade is with the EU and almost 75% of the foreign investment that 
flows into Turkey with a strong high technology component comes from the EU"
11
. 
However Turkey decided  not to implement the Customs Union leaving  several trade 
issues unresolved, such as the abolition of technical barriers for trade, or restrictions on: 
import goods from third countries, state aid, enforcement of intellectual property rights, 
                                                 
8
 Stefano Braghiroli, “An empirical assessment of MPE's voting behaviour on Turkey and Turkish membership”, Centre of 
the study of political change (CIRCAP), University of Siena, 2010. Osservatorio sui Balcani website. 
9
 European Commission 2005. 
10
 European Commission, Turkey 2012 progress report (October 2011-september 2012), Brussels 2012. p. 4. 
11
 Ibid. p. 5.
13 
 
requirements for the registration of new pharmaceutical products and discriminatory tax 
treatment. The EU urged Turkey to remove all remaining restrictions on the free 
movement of goods, including means of transport regarding Cyprus, and to implement 
the Customs Union fully. 
As regards financial assistance " € 856 million has been earmarked for Turkey from the 
Instrument for Pre-Accession Assistance (IPA) for the year 2012. In line with the 
Multiannual Indicative Planning Document (MIPD) for 2011-2013, importance has been 
given to further advance a sector-based approach which aims to better focus assistance 
on political priorities"
12
 and for economic, social, and rural development.  
Furthermore Turkey is benefiting from a series of regional and horizontal programmes 
under the IPA, but it needs to improve the quality of its programmes and projects and to 
avoid loss of funds.  
Ankara also actively participates in EU Programmes and Agencies: the seventh research 
Framework Custom Program 2013; fiscal programmes for 2013; the European 
Environmental Agency; the Competitiveness and Innovation Framework program 
(Including the Entrepreneurship and innovation programme and the Information 
Communication Technologies Policy Support Programme); Cultural Progress 2007, 
Lifelong Learning and Youth in Action. IPA funds are used to meet part of the costs of 
participation in most of these programmes. 
“Although such adjustment process is positive for economic stability, Turkey has large 
external imbalances, and remains vulnerable to further global financial shocks, in 
particular capital flow reversal"
13
. In 2011, for example, the Turkish economy grew by 
8.5% only slightly down from 9.2% in 2010. Growth was largely driven by the private 
sector, with consumer spending up 7.7% in the last year and private sector investment 
reached 22.8%. The strength of domestic demand led to import volumes increasing 
10.6% in that year, while the level of export volume was 6.5% higher than in 2010, 
partly as a result of the depreciation of the Turkish Lira ( by 20% against the Euro). 
 
 
 
 
 
 
 
 
 
 
                                                 
12
 Ibid. p. 6. 
 acquis: 35 chapter of the EU’s law. Is a force step imposed by EU regard the main issues like water and the energy 
program, human rights. Turkey must fulfil in order to define its access into the Union. Turkey must comply with all 35 
areas of EU law in order to join the club In the seven years since negotiations began, Turkey has opened only 13 
chapters, and closed only one, on science and research. No chapters have been opened for two years. Eighteen 
chapters have been frozen. 
 
13
 Ibid. p. 37.
14 
 
1.2.1 The other side of Turkish Foreign Policy 
 
At the same time Turkey could become an example for the entire Middle East having a 
successful mixture of  a capitalistic economy and the Muslim world, but above all, for its 
continued search for self-determination. Especially under the Erdoğan government, 
Turkish foreign policy has became clear and oriented towards a very ambitious target to 
be a reference point for all the Middle East. The “main characteristics of Turkey with its 
democratic system are its Islamic character, a pluralistic government and rule of law in a 
Muslim society, not to mention the pride and wisdom of its leaders who reject any form 
of subordination or submission. This is the Turkey that has become an inspiration to the 
Arab people”
14
.  
Erdoğan did not want to submit Turkey to the will of the leaders of the European 
countries, especially the former French Prime Minister Sarkozy who was always against 
a possible membership of Turkey in the European Union because of the religious 
component. “In order to drive the message home, Erdoğan’s gift to Sarkozy was a letter 
written by Ottoman Sultan Sulaiman the Magnificent in 1526, in response to a plea from 
the Christian king of France. Francis I had been taken prisoner by fellow Christian 
Spaniards, and he asked for assistance from the Muslim Ottomans. Sulaiman sent his 
assurances, followed by a military force which freed the French king”
15
.  
The goal  of the Turkish Prime Minister was to remind Christian Europe of the Turkish 
role in history, and that its strategic importance and power in the Middle East continues 
as in the past, always with a  tolerant approach to religion. The Arabs must learn from 
this. 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
14
 Bouthaina Shaaban, “Turkey as a model for the new Middle East”, Middle East Monitor website, March 2011. 
15
 Ibid.
15 
 
 
1.2.2 Turkey in the Mediterranean 
 
It is clear that the economic relationship between Turkey and most of the countries along 
the Mediterranean coast is influenced by the European Union. However Turkey, because 
of its geographical position,  is also considered as a “hub”  for the MENA(Middle East 
and North Africa) organization. This is especially so because of  its particularly strategic 
position in the Greater Middle East. It is interesting to note how the International 
Monetary Fund also added Afghanistan and Pakistan to this Organization changing the 
acronym to MENAP.  
This organization is still important on the international level because of the reserves of 
oil and natural gas, which are important for global economic stability. According to the 
Oil and Gas Journal (January 1
st
, 2009) the MENA region also includes: Bahrain, 
Djibouti, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Malta, Oman, Qatar, Saudi Arabia, 
Syria, United Arab Emirates, West Bank and Gaza, Yemen, Egypt, Tunisia, Libya, 
Morocco and Algeria. It means that MENAP reached 60% of the world's oil reserves and 
45% of the world's natural gas reserves.  
According to the economic development of the Mediterranean area, a more recent project 
called “Custom Med”, was signed in Taormina, Sicily, at the beginning of 2012. Italy 
and Turkey were the main signatories. The main aim of this project is to improve the 
economic cooperation and market protection as well as border control to create free trade 
and commerce, which mostly concerns the circulation of goods within the Euro-
Mediterranean area. “The project officially started on 12th April 2012 and will extend 
over a period of 30 months. Its purpose is to increase circulation of goods among 
selected Mediterranean ports (Aqaba, Beirut, Piraeus and Alicante) by developing 
common customs procedures and increasing the use of ICT. This will contribute to 
reducing the length of import-clearing processes at the same time reinforcing the 
competiveness of the concerned ports”
16
.  Custom Med’s total budget for this initiative 
amounts to “€ 1.163.186 of which € 1.046.867 as an ENPI contribution (90%)”
17
 and 
these results were coordinated by the University of Genoa while other organizations such 
as Lebanese Public Customs Administration (Lebanon); Port Institute for Studies and 
Co-operation (Spain, Comunidad Valenciana); Piraeus Port Authority (Greece, Attiki); 
Alicante Port Authority (Spain, Comunidad Valenciana); Aqaba Development 
Corporation (Jordan, Al-Aqaba) are involved as partners.  
This project has been founded on a strong basis made up of  six million consumers. Past 
economic relations reached almost € 45 billion in 2009, during which Italy played an 
important role in coordinating South Mediterranean economic activities. Moreover the 
Mediterranean commercial relations improved and were accepted enthusiastically by 
Turkey. This coordination aims at favouring well known transportation corridors and are 
helpful at fighting the illegal transportation of drugs which implement the international 
                                                 
16
 Custom Med website, http://www.enpicbcmed.eu/communication/custom-med-improve-goods-circulation-
mediterranean 
17
 Ibid.
16 
 
black economy and organized crime.  
Turkey offers a good economic reference point in the Mediterranean context, especially 
concerning the evolution of both its domestic and foreign economic policies, compared 
to the last thirty years. Nonetheless Turkish growth remains strictly interconnected with 
its economic partners. During the last nine years the average annual growth rate 
remained stable at 5.2% which has placed Turkey 18
th
 in the rating of the world’s best 
economies and 7
th
 in Europe.  
Following the last statics provided by ISPAT  (Investment Support and Promotion 
Agency of Turkey) in 2012 Turkey reached 12
th
 place for direct foreign investment with 
€ 110 billion invested. During the last ten years Turkey has scheduled its political 
economy on a “soft landing” programme to “counteract some of its chronic diseases, 
including a current accounts deficit (at the unsustainable threshold of circa 10% of GDP 
at the end of 2011), and a dangerously high 10.45% inflation rate in 2011”
18
.  
Although, in 2012, the Turkish government approved investment incentives as a reaction 
against energy and energy production dependence which is mostly financed by foreign 
investment with short-term projects. This kind of political economy orientation will 
make the government able to redirect those foreign investments into the technologic area 
of local production and on export productivity for the international market. In recent 
years structural reforms have been made, especially in relation to the labour market but 
“more in particular [with] the main factors of internal vulnerability and high levels of 
inflation (which, began to drop from May 2012 and settled at 6.1% in December last 
year, the best result in the last 40 years). As regards the labour market, unemployment 
closed at 10.1% in 2012”
19
.  
According to the International Monetary Fund (IMF), since 1999, in the macro-economic 
sphere, Turkey has adopted some recovery measures to improve its export 
internationally. But, except for the years 2008/2009 and 2012, when Turkish GDP 
registered at only 2,2%, we can say that the newest Turkish productive model has been 
successful. It was focused on more exports, research and growth programmes for Turkish 
enterprises; more transparency for the Public Administration and education and justice 
were improved with an eye to EU membership. Finally the goal of this process was to 
better the regional development inside Turkey. 
“A slowdown was already 'partly envisaged in the Medium Term Programme 2012-
2014, in which the Turkish government has been identifying strategies along which 
Turkey will have to move in this three-year period, focusing on the need for policies to 
support employment, financial discipline, [the] stimulation of domestic savings, [all of] 
which fight the excessive foreign deficit and ensure greater macroeconomic stability”
20
. 
                                                 
18
 Italian Embassy-Turkey in collaboration with ICE, Summary Tab of Turkey, April 2013, p.6  
19
 Italian Embassy-Turkey op. cit. p.6  
20
 Italian Embassy-Turkey op. cit. p.6   
 Globally active, ISPAT operates with a network of local consultants in Belgium, Canada, China, France, Germany, 
India, Italy, Japan, Luxembourg, Saudi Arabia, Spain, Gulf States (Bahrain, Kuwait, Oman, Qatar and United Arab 
Emirates), Russian Federation, United Kingdom, United States and South Korea, providing a wide range of services to 
investors through a holistic approach and assisting them in achieving optimum results in Turkey. The professional team 
ISPAT is able to provide assistance to investors in Arabic, Chinese, English, French, German, Italian, Japanese, Korean,
17 
 
1.3 The importance of the energy sector and foreign investment     
    
After the Cold War ended, there was a revival of traditional patterns of trade, human 
relations, and cultural exchange along the main fluvial routes (Danube, Tigris, Euphrates, 
etc.) which have always been the historical means of transport, “there has been an 
immense intensification of trade, tourism, educational, and media linkages between 
Turkey and its neighbours to the East and the West”
21
.  
Today it is also possible to include the energy resource sector. Indeed, in February 2012, 
Stefan Fule, UE commissioner for Enlargement and European Neighbourhood Policy 
and Gunter Ottinger, EU commissioner for energy, came to Ankara for a formal visit to 
discuss the new growing role of one of the fastest economies of this new century, 
Turkey. After China, Turkey will become one of the most dynamic economies as far as 
the demand of natural gas and electricity concerned.  Even if 26% of the total demand of 
energy is being met by domestic resources, the other 74% depends on imports and this is 
a serious limitation for the Turkish energy policy. Nonetheless, the Erdoğan 
government’s goal, in the follow years, will have as its target the production of its own 
energy security: “diversify its energy supply routes and source countries; increase the 
share of renewable and include the nuclear in its energy mix; this way Turkey could take 
significant steps to increase its energy efficiency; and to contribute to Europe’s energy 
security.”
22
  
The International Energy Agency (IEA) estimates that electricity, natural gas and oil 
demand will reach “393-434 billion KWN, 59 BCM and 59 million tons” respectively, 
but Turkey will also need foreign investment to satisfy this demand and investment from 
private sector. The plan is to reach 30% of domestic demand in 2023 with the help of 
alternative sources, such as: geothermal, hydro, solar and wind energy.  
Moreover in January 2009 Turkey was a signatory of the EU’s IRENA (International 
Renewable Energy Agency) and in the process Turkey to harmonize its energy 
legislation with the EU acquis program. As regards nuclear energy and as required by 
EU legislation, Turkey’s government intends to establish two new sites in Akkuyu and 
Sinop. This is possible thanks to some intergovernmental agreements with Russia. The 
double network Turkey must face, makes of this country a natural energy bridge between 
on the one hand the source countries in the Middle East and the Caspian basin, and on 
the other hand the consumer market which is mostly in the EU. 
As regards oil pipelines, the Baku-Tiblisi-Ceyhan (BTC)pipeline is the main component 
of the East-West energy corridor from Azerbaijan through Georgia and finally to the 
Turkish coast. This pipeline has a capacity of one billion barrels per day and is the 
second longest pipeline in the world. 
Another one is the Kirkuk-Yumurtalik crude oil pipeline, which was created from the 
                                                                                                                                                                   
Russian, Spanish and Turkish and is committed to supporting investors so that they develop successful business offices 
in Turkey. 
 
21
 The cost of  no EU-Turkey III: FIVE VIEWS.Open Society Foundation, May 2011, Istanbul. 
Krzysztof Boninnski , “Turkey must enrich the European Union’s political imagination”. President of UNIA & POLSKA 
Foundation, Warsaw. Former journalist Financial Times.  
22
 Republic of Turkey(website), Ministry of foreign affairs/energy issue.