Turkey’s Current Account Deficit Problem and Its Effects on the European Union Accession

Abstract

In developing countries, long-term current account deficits may cause serious problems in the economy. Turkey's current account deficit and the financing of this deficit is one of the most widely debated issues in recent years. There are two different views about the emergence of the current account deficit. According to the first view, the current account deficit is due to the increase in demand created by economic growth after the 2001 crisis. According to the other opinion, this deficit is a result of an overvalued domestic currency, which is created by high interest rates accelerating the flow of short-term speculative capital. Since the current account deficit is financed with debt, the increasing external debt of the country is threatening the future of the economy. In this study, firstly the current account deficit problem in Turkey and the factors affecting the current operations which play an important role in financing the short-term capital movements are explained. Secondly, the policies to ensure the current account balance are defined. Finally the effects of the current account deficit problem on the European Union accession is discussed.