Confirming speculation that Turkey's recent pivot toward Europe in response to the diplomatic spat with Trump may already be bearing fruit, the WSJ reports that "the German government is considering providing emergency financial assistance to Turkey as concerns grow in Berlin that a full-blown economic crisis could destabilize the region."
The WSJ adds writes that "while the talks are at an early stage and may not result in any aid, the possibilities being discussed range from a coordinated European bailout similar to the kind deployed during the eurozone debt crisis to project-specific loans by state-controlled development banks and bilateral aid."
The report notes that two senior officials in Berlin said German finance minister Olaf Scholz have discussed some of the options with his Turkish counterpart Berat Albayrak in recent conversations, and that the possibilities discussed range from a coordinated European bailout to project-specific loans by state-controlled development banks and bilateral aid.
Other avenues short of a full-fledged bailout could involve loans by the European Investment Bank or the European Bank for Research and Development for specific projects, one of the officials said. Any such measure would require an agreement by EU’s member states.
The driver behind the German initiative: containing contagion:
Berlin fears a meltdown of the Turkish economy could spill over into Europe, cause further unrest in the Middle East and trigger a new wave of immigration toward the north.
“We would do a lot to try to stabilize Turkey,” a senior German official said. “We don’t have much choice.”
Needless to say, such aid would mark a "striking rapprochement" between Germany and Turkey, close allies for over a century that have become increasingly estranged in recent years as Turkish President Recep Tayyip Erdogan’s rule has grown more authoritarian.
Potentially mitigating the blow to Merkel's ego is that France may also be on board, and after hosting his Turkish counterpart in Paris on Monday, French Finance Minister Bruno Le Maire said it was important to support Turkey’s efforts to repair its economy.
The IMF would also likely need to get involved according to two Brussels-based senior EU officials, which could complicate matters as Erdogan has repeatedly said he would never concede to an IMF bailout.
That said, not everyone is on board, and another German official cautioned that neither Germany nor Europe had enough resources to offer anything other than limited and temporary support to Turkey without the IMF.
"This is an absolutely insane and ill-informed policy,” said one senior German official.
Any German assistance for Erdogan could also involve political risks for German Chancellor Angela Merkel. A Deutschlandtrend poll published last week found that 72% of Germans were opposed to any financial aid to Turkey.
But ultimately, the WSJ writes, Europe may find it inevitable to provide some form of assistance to Turkey.
“We cannot just sit and watch Turkey go down the drain. The migration pressure and the geostrategic importance, as well as the economic links, are too important,” this person said.
The lira was delighted by the news, and spike from session lows of 6.28 to 6.16, although it has since given back some gains as traders read the fine print of the proposal which would only happen if Erdogan felt he was desperate enough to come begging for German - and IMF - assistance.