INTRODUCTION:

The main purpose of this study is to provide an economic evaluation of Turkish economy in the context of requirements of The European Union which accepts new members with decisive criteria.

Enlargement process of The European Union is complex issue and consists of several political and economic arguments. This study organized as follows.

The first chapter of this study explains the past enlargement waves of The European Union which must be studied to comprehend the enlargement process of the European Union. Therefore, the first concept to explain is the methodology of the past enlargement waves.

Each of these past enlargement waves had different characteristics. Economic factors and politic factors were the main arguments in these processes. Union accepted new countries sometimes in respect to their economic strength; however, sometimes political benefits were under consideration. Determinants of these factors were explained in the first chapter.

The second chapter provides highlight points of Turkish economy and Turkish political agenda. It explains the historical background of Turkey-European Union relations in economic and political perspectives. There are two steps in this chapter.

At the first step, political dimension of the relations between 1960 and 1999, and summits related to Turkey are examined. 1963 Ankara agreement, 1970 Additional protocol, 1987 membership application are explained in details. Changing political structure of Turkey after 1980 is also summarized.

Afterwards, summits which are effective on Turkey are explained. Several political summits convened and important decisions were taken as the results of these summits. In 1993, Copenhagen Summit, accession criteria were determined which should be fulfilled by the candidate countries for the full membership to European Union, In 1999, Helsinki Summit declared Turkey as a candidate for membership of EU. Moreover, in some summits Turkey and its candidacy were negotiated. Second chapter explains important results of these summits in the perspective of Turkey.

At the second part of second chapter economic situation of Turkey is evaluated between 1960-1999 in the context of relation with European Union. Turkish economy experienced several fluctuations in this period.

Changing economic and political issues of Turkey describe unstable relationship between Turkey and European Union. After 1960, Turkey did not have stable economic and political environment. Many fluctuations were recorded in these years These case are explained in the second chapter.

Finally, the third chapter examines important arguments after the acceptance of the candidacy of Turkey by European Union in 1999 Helsinki Summit.

European Union determined several criteria for the full membership in 1993 Copenhagen summit. One of these criteria is related to economic conditions. Existence of a functioning market economy and capacity to cope with competitive pressures and market forces within the Union are the required conditions for fulfilling the economic Copenhagen criterion.

In order to analyze these conditions several aspects of the Turkish economy is examined between 1999, acceptance of its candidacy, and 2004. Growth performance, public finance, government foreign debt, employment structure and unemployment, current account, inflation, exchange rate and monetary policy, trade relations with European Union constitute general framework about the required Copenhagen economic criteria. Moreover, comparisons of Turkey's case with 10 new members are added to each section.

Additionally, Union determined four criteria for the convergence to European Monitory Union which are named as Maastricht criteria. In the relevant section, these criteria are explained by making comparisons with the new 10 members.

1) ENLARGEMENT PROCESS OF THE EUROPEAN UNION

After second world war, there had been seen a transformation in the state and relations between some European countries. Bitter hostility and division were replaced by closer economic and political cooperation and integration. The economic devastation of the war was tied to replaced by the calm wind of the peace and by economic prosperity. A treaty was signed by six countries and it was named as European coal and steel community. Economic integration was confined to two sectors. 1( Dennis swan, European integration, The common market, European union and beyond)

In six countries federalist views were dominant .these countries were: France, Germany, Italy, Holland,. Belgium and Luxemburg. There was a desire to establish agencies with some supranational powers. This caused to the setting up of the ECSC established by the Treaty of signed in 1654. The aim was to integrate the coal and steel industries of Germany, the heart of its war machine into an interdependent European industrial structure. By this processes it was tried to prevent wars between West European countries.2( Frank Mcdonald and Stephen Dearden, European economic integration)

Afterwards, the European economic community and the European atomic energy community were founded by the treaty of Rome in 1957. These there entities were merged in 1965 when a common institutional structure to govern the work of these three agencies was established. This was called European community. The term European Union came Into common use in 1993 after the council of ministers renamed itself the council of the European union. This name stems from the Maastricht treaty which formed the term to encompass the variety of cooperation and integration work than was carried out by the current member stated, The Maastricht treaty formed three pillars, The E, justice and home affairs, foreign and security policy, and named the umbrella structure for these three pillars of EU. 3( Frank McDonald and Stephen deaden, EE integration) Background of the Union may be summarized as above.

However, it should not be forgotten that from the beginning of the history of the community to the current days of the union, there has recorded many changes.

European integration project was mostly economic at the begging; it gradually expanded to involve political and social aspects and specifications. 4( Muzaffer Dartan, The EU enlargement process and turkey.)

After several years from the ECSC treaty, some countries started to apply to become a member of this cooperation/community/union and these applications continued as a current issue Some of them were accepted and the union enlarged with its new members. In this section, these enlargement periods are going to be studied.

1.1) First Enlargement Wave

The first enlargement period consists of three members. These are United kingdom, Ireland and Denmark. It is intended to evaluate, first, United kingdom. UK kept itself away from the community according to its own desire which appeared after the second world war. However, after a while, UK politicians changed their mind.

The reasons of the desire of UK for adhesion to the community may be roughly classified into two groups: Economic and political. Politically, it was clear that UK was no longer a world power of the first rank. This country had lost its old effectiveness in the world.

At the economic side, on all the usual economic indicators, such as growth in trade, in GDP. In investment, in income the member countries of the European community were outperforming UK.

UK attempted in 1961 to become a member of the European community. On 31 July 1961, Prime minister Harold Macmillan declared the desire of UK for membership to the community. In November of the same year, government declared a white paper. This paper was stating the intention of the government and also declaring the reasons of staying away from the community and also was declaring the end of this period. With this paper UK was accepting the 2nd and 3rd articles of the treaty of Rome. Moreover, this paper was expressing that UK was approving the abolishment of internal tariffs in terms of a common custom union, a common commercial policy, and a common agricultural policy. 5 ( Christopher Preston, Enlargement and Integration in the EU.)

In fact this declaration might be counted as the acceptance of the general mentality of the community on the part of the UK. However, the process was not finishing with this statement and many other problems were occurring to UK`s desire of adhesion to the community by the Gaulle, president if France. By the defenses of De Gaulle, UK was rejected from the community twice in 1963 and also in 1967. However, this was not the end of UK`s attempts for joining the community.

After the election in France, De Gaulle had lost the presidency. New president, Georges Pompidou was thinking different form the previous president. He believed that enlargement could strengthen the community. Afterwards, the commission revised its opinion about rejection of UK and in October 1969 recommended that negotiations should start with all four applications immediately.

The new French government supported the application of UK to the community. After the developments the community started to the negotiations with the UK government in June 1970 in Brussels.

However, with the start of negotiations there was seen that UK had a hard manner in the acquis of the community. Afterwards, community decided not to discuss acquis if the community with a country which desires to access to the community. This decision became a rule for the following enlargement negotiations. 6 (Irfan kaya ulger, Avrupa Birliginin abc si)

In the fisrt enlargement period, economically wealthy countries became new members. However, this enlargement wave did not occur without any problem even though the premature structure of the community in comparison with the current structure. There may be stated several factors as the problematic areas; first, the economic crisis environment of the 1970s was effective during the first enlargement period of the community. Dollar shock, petroleum shock forced the countries of the community to follow protective policies and caused to remove the community from its aims. This issue became more problematic with the accession of the new countries. A second factor about problematic area was the comprehension of the slow processing of the community's structure. This problem increased with the adhesion of the new members. Third factor was about the budget of the community. This was more important than the others. After the accession of UK, arguments had started about budget revenues and expenditures which were prepared according to the balance of the six country of the community. 7(IBID)

After the negotiations and their completion, on 22 January 1972 the treaty of Brussels was signed. With this process, UK became a new member of the European community on 1 January 1973.

Ireland and Denmark became new members of the community with the first enlargement period. Irish trade was expanding rapidly, especially with UK and economic growth increased at the end. It became essential for Ireland to join to EEC when UK's third application was finally accepted in 1973. 8 ( Larry Neal, The economics of the European union and the economics of Europe)

The Irish application was submitted on 31 July 1961. Because of the effects of the UK`s problems whit the community, Irish application was influenced negatively. However, in line with the process of UK, negotiations with the community finished in January 1972. 9( Christopher Preston, enlargement and integration in the European union) At 2 October 1972, 63,5% of the public accepted the adhesion decision in the referendum. 10( Irfan kaya, avrupa birligi ansiklopedisi)

Another country of the fist enlargement period was Denmark. On the same day the UK`s application Danish government declared its intention to apply for the membership. This country's negotiations were broken down the collapse of the negotiations of UK in 1963. However, afterwards Denmark became a new member of the community with the other two countries of the same enlargement wave. 11( IBID)

At 22 January 1972 Denmark, Ireland, Norway and UK signed the treaty which was making them members of EEC. Afterwards, in a referendum which was held at 26 September of the same year, the Norwegians decide not to join EU. 12 ( Philip Toddy, an historical introduction to the European union)

1.2. Second Enlargement Wave

During the years 1974-1975, in Greece, Spain and Portugal, the military governments were collapsed and the relations between the European community and these three countries had moved to another dimension. The region, Mediterranean zone, and these three countries were possessing diverse and different features in comparison with the member countries of that period. In contrast to the former enlargement period, European community was confronted with three different candidates. The new candidates which were wounded by weak economic structure with high tensions of military and political securities and three democratic countries which acquired their democracy recently were constructing general view of the second enlargement period of the community. 13( Christopher Preston, Enlargement and Integration in the European Union)

The implementation degree of acquis of the new applicant countries and the domestic interests sensitivity caused this enlargement period to occur with more strict and stronger conditions. Because the community was preparing itself to welcome new members whose economic conditions were not sufficient as the former ones, and also they had democracies which were suffered from the dictatorship recently.

The commission of the European communities on 20 April 1978 stated in general consideration on the problems of enlargement of the positions of the new applicants as:

“When Greece, Portugal and Spain, newly emerging as democratic states after a long period of dictatorship, asked to be admitted to the community, they were making a commitment which is primarily a political one. Their choice was significant, both reflecting the concern of these new democracies for their own consolidation and protection against the return of dictatorship and constituting an act of faith in a united Europe. In this respect, Greece completed this difficult period by passing through diverse stages. From the beginning of 1960s, application of Greece in June 1959 to the European community, un accordance with the article 238 of the Rome treaty, brought about two contrary questions which took up time on the agenda of the community. In case of Greek adhesion to the community, its political and economic effects started to be discussed. Also, European community had fears, and hopes about Greece's negative and positive political and economic effects on the community” 14( IBID)

Briefly stating, by opening its gates to Greece the community was accepting a relatively different geography, which was far away from the countries accepted with the first enlargement wave in terms of economic and political dimensions.

First enlargement wave was containing of closer new members economically and geographically and, in economic areas there were not huge differences with the new three members but this time Greek economy was not so brilliant and this was carrying new economic burdens, and also then problems of harmonization.

In July 1961, the association agreement signed between the community and Greece. By this agreement, a customs union was established between two sides. Also, it was tried to determine the conditions of financial assistance and process of policy harmonization. And it is worthy to mention that, the signature of the association agreement had two meanings; Fist, to formalize the relations with a country which had not possibility for full membership. Second meaning was to fix a first step on the way to the full membership. It was understood from the article 72 of the Athens agreement that Greece was installed on the second group. Regarding on the conditions and decisions of the treaty, the restrictions on industrial products would be lifted during 22 years, nevertheless, tariffs and quotes would be abolished in a 12 year period except the goods manufactured in Greece. Familiar interpretations were valid in agriculture sectors. 15 ( IBID)

At April 1967, Greece experienced a military coup. Afterwards, the community froze the interpretation of the Athens Agreement. 16 (IBID)

After the collapse of military dictatorial, as soon as the previous governing model was coming back, the government desired to reactive the interrupted relations with the community. On the 1st of November 1974, the transition period started. By this process, it was estimated that full membership of Greece might be in year 1984. 17(Jean-Francois)

But Greece didn't evaluate it sufficiently and after the reconstruction of the democratic regime, the negotiations with the community for the associate status had applied for the full membership without any delay.

Karamanlis government applied in accordance with the article 75 in June 1975. However, before all, Greece would face some problems on the way of the full membership status. But in general sense the problem was political. Even though the Greek economy was not able to integrate smoothly with the community, Karamanlis was looking for a swift adhesion to the community. He was considering that adhesion to the community would reinforce the Greek democracy which was recently constructed.18(IBID)

However, Greek candidacy was not welcomed with the excite in Brussels nor with the enthusiasm. Its economy was still weak an inadequate and underdeveloped for adapt itself to the common market. But the ‘nines' were not incentive to the political aspects. 19( IBID)

The response of the community to the Greece's possible membership was including some different and diverse manners. Germany and United Kingdom had stated more anxious replies in comparison with France. They were worried about the security problems which might occur in case of Greece's membership. The warmest response had received from France. President Valery dasting had formed close relations with karamanlis and actively supported the membership of Greece. 20 (Christopher Preston, Enlargement and integration in The European union)

Commission declared its opinion on 28 January 1976, and accepted the start of the negotiations with ‘half-hearted', however, described a pre-accession period before a specific transitional period. Commission stated its decision because of the effects of three factors:

‘The European community did not desire to injure its relations with Turkey, and even in different time periods, for a second reason, it may be stated economic factors. In total, even though Greece economy had small effects on the community, structural weakness of the economy of Greece and especially the size of the agriculture population and non-sufficient industrial base would marking that important part of the resource transfers from European Community's budget would go to Greece in case of its full membership. Finally, Commission declared its decision in that manner because of the possible full membership of Greece would made effects on decision making and policy development of the European community with an undesired form of community. In fact, this reason may be added for all members and community or union experience. It was a factor during the welcome period of any new member. As it might be predicted, Greek government answered with a great reaction to the commission's decision. Greek government was claiming that association agreement had to be substituted as a pre-accession period. Greek government had also respected that decision as a cause of the delay of the full membership.” 21(IBID)

Council of ministers rejected the commission's opinion. Moreover, Karamanlis threatened the community with the withdrawal of the Greece's application and commenced to lobbying. In addition to these events, French government rejected the pre-accession period. Dutch and German foreign ministers declared commentaries in favor of the start of negotiations as soon as possible. Finally, on 9 February 1976, at the meeting of council, member states rejected the opinion of the commission and had been decided to ask for from coreper to prepare a negotiating mandate. Afterwards, it might start the negotiations.22(IBID)

Even though its burdens, the full membership of Greece was worth its small size23(Jean-François) according to the community.

Accession negotiations took 34 months which was longer than the negotiations of the first enlargement period. Moreover, any of the member states were not so enthusiastic about the membership of Greece. Germany considered geopolitical stabilization issues in the eastern Mediterranean region more important than the economic problems of Greece. French, during this period, was more complex and changeable however, the desire to become a bridge between north Europe and south Europe cause it to approach to the membership of Greece more optimistic. UK was uncertain in this decision. 24(Christopher Preston, Enlargement and integration in the European union)

The adhesion agreement was signed on 28 May 1979 and came into effect on 1 January 1981. Greece was a new member of the community.

1.3. Third Enlargement Wave

Spain and Portugal were the adherents of the third enlargement wave of the European Community.

However, one can not reveal that during this period the relations between EEC and these countries were improved too much. Main developments, in Portugal, with 1974 revolution, in Spain, after the death of Franco in 1975, were started to be recorded and the context of European integration commenced to change. Moreover, this enlargement proves, the third one, was carrying a different and critical importance. Briefly speaking, the Community, confronted with a historic shift in its balance to power by opening toward Eastern Europe which set off the founders of the community and its associates from north to a journey with new democratic neighbors Spain and Portugal named as integration with south Europe. Because of all these factors, this enlargement wave would testify the community whether it would be able become a stabilization factor in the region and to bring up pluralist political and economic structures and to catch economic diversifications with different countries which had different economic stages around the region.25(IBID)

Regarding the Spain's relations with European economic community, a preferential agreement between the two sides is observed.

Spain applied to the community, in 1962, for an association agreement. The objective was to construct an association which includes a full membership in future. European community replied two years later, in 1964, with a positive manner. The agreement was envisaging, as the first stage, 70% reduction of tariffs of EC on industrial goods of Spain and 40% on citrus fruit, also Spain decided to decline EC export tariffs up to 1977 throughout six stages. After the collapse of the dictatorial, in Spain, full membership became a current issue. On the other side, Portugal after The Hague Summit which tried to decide about the post-enlargement relations with EFTA countries, applied for association agreement in November 1970. The special relations agreement came into effect between the community and the remaining members of EFTA on 1 January 1973. Portugal was one of the states which would benefit from it. Elimination of all barriers on exports of the Portugal, even fir sensitive sectors, except textiles, to the community by 1977 was the commercial facilities the agreement put forward.

After the Free Trade Agreement signed in 1972, Portugal attempted for negotiations to reach an additional protocol in 1976. Consequently, in September 1976 Protocol signed about which the Portuguese government awarded afterwards that it was not the best choice for Portugal. They decided that the full membership was the “best long-term” and Prime Minister, Dr. Mario Soars applied to the community with a formal application when the date was 28 March 1977.26( IBID)

New applicant caused different voices among the member states. The member countries globally were in favor of the adhesion of Spain. Northern countries awarded that the possibility of entering to the markets which were still closed. For instance, Italy welcomed, positively, access of the new two partners which would yield close benefits. France was particularly pleased because of opening of its boundaries to the Southeast.27(Jean-Francois Drevet)

Also, the rich men club was not pleasant for the wealthy members of the community.28( European Documentation)

As a consequence, two countries had applied for full membership by the consequences of resembling procedures, formerly, signature of the association of the association agreements, subsequently, applications for full membership which indicates and reveals an improved point for relations.

Commission submitted its interpretation to the council for the start of the negotiations and its submission yielded for this wave of enlargement for Spain and Portugal in 1978. Commission's decision for Spain was affirmative and stated as follows:

“It is useless to pretend, however, that Spain's accession will pose no problem. Success implies that Spain's economy should be integrated with the economy of the community without intolerable strains on either side. When the process of integration is complete, the community should emerge strengthened and not diluted.”(29 Christopher Preston)

Commission's response which was submitted to the council in May 1978 had a positive approach for Portugal. Even though its economy was worse than Spain, it was easily understood that in case of its adhesion to the community its effects would be restricted. Portuguese's GDP was 1% of total GDP of community. Therefore, Portugal was not carrying a huge burden on the community economically. However, its economy was not indicating a brilliant appearance. Because of this reason, commission's “opinion” for Portugal was built around the bearing of “structural weakness” before the accession period to the community. 30( IBID)

Mentioned two economies made their biggest modifications with the EFC. Even though Spain was considered strong to overcome the adhesion shock it had still vulnerable industrial sectors and the regions which were on retard would have adaption problems. However, Portugal was evaluated more fragile than Spain. Many experts was worried about that Portugal could not overcome the adhesion shock. But, with all these, it was difficult to separate it from its neighbor, Spain. 31( Jean- François)

After the presentation of Portugal's demand of accession, the negotiation commenced on 17 October 1978 and Spain applied for adhesion on 28 July 1977, afterwards the start if negotiations on 5 February 1979 were the processes of these two countries toward to the full membership. 32( Philippe Deloire)

Adhesion agreements were signed on 12 June 1985 between the applicant countries and community. Spain and Portugal were new members on 1 January 1986.

1.4. Fourth Enlargement Wave

It is worthy to state that the prospect that the rich EFTA countries would be net contributes to the EC budget was counted as one of the main attractions of this enlargement wave.33(Helen wallece and William wallece)

Main point of the forth enlargement wave, which we may also name as EFTA enlargement, was that the a;; new members were from EFTA countries. Because of this, it is intended to make a brief summary of the relations between EFTA and EC, then, we want to examine three new members of the community respectively.

Another point which deserves importance is the arguments of the period when these new members adhere to the community. This period was representing the post-transition period of the Community to a union.

Union witnessed the single act in 1992, and also decided some new decisions in Maastricht at 1993 and united three different treaties coming from the past of the community. This process also made clear the faults of the union. These were some if the arguments which indicated easily the changing structure of the union.

Relations between EC and EFTA commenced to rise at the beginnings of 1960s. And with the completion of the customs union of EC it had started searches for free trade agreement. This agreement was signed in 1972 and by 1977, it abolished all duties for the industrial goods. With time, because of some trade successes these abolishment of trade duties were carried to other areas.34( Christopher Preston)

On 2 May 1992, old twelve members and six members of EFTA, Austria, Finland, Norway, Sweden, Island and Lichtenstein whose population had reached nearly 380 million, signed the agreement which established European Economic Area (EEA). It would go into effect on 1 January 1994 without Swede which rejected it by referendum on 6 December. EEA was an association which was structured institutional degree. EEA was aiming to determine the rules of access to the single market and the rules of concurrence of the community. 35 (jean- luc sauron)

The agreement constitutes EEA formed world's biggest integrated area. This area comprised 18 countries in a single market with 380 million person, 30 percent of world GDP and 47 percent of world trade. 36( Theo Hiltiris)

Nevertheless, with the candidacy of EFTA countries to European Union. EEA lost its importance and it turned towards to be a step towards European Union.

Moreover, with the collapse of the Soviet Union neutrality of certain members, Sweden, Austria, Finland, Switzerland, changed.

During this new enlargement period, the candidates which desire to be the new members of the union started to declare their candidacy. EFTA's loss of its old importance may be stated as the reasons of the going towards of the EFTA countries to candidacy.

Austria was the first country that declared its candidacy. Its application date was 27 July 1989. After this, in 1 July 1991 Sweden, in 1 March 1992 Finland followed the same process. Switzerland's application date was recorded as 26 March 1992 and also Norway's was 25 November 1992.

Lisbon summit in June 1992 had a critical importance in sense of statement of some basic pillars of the future enlargements which were considered. EEA agreement constructed an accelerated period for the start of negotiations with EFTA countries. For Edinburgh summit in December 1992, it was asked for from the commission to prepare general negotiation framework. Commission responded to Swedish application in August 1992, to Finland's application in November 1992, to Norway's application in March 1993. On 12 December 1992, Edinburgh summit confirmed the general framework of negotiations for enlargement. Council, in the beginning of 1993, accepted the start of the negotiations with Austria, Sweden, and Finland. Switzerland rejected the EEA agreement with a referendum on 6 December, and that was to say that this country was resigning from the candidacy. At the same time, this was a reasonable negotiation timetable because the new candidates had accepted approximately 60% of the acquis of the Union. Afterwards, negotiations commenced under the presidency of Denmark in February 1993. 37 (Christopher)

Union recorded its easiest negotiation period since it had experienced during that time. New three members' position was really close to the acquis of the union. As a matter of fact, they were in a good and untroubled manner in terms of economic conditions compared with the second and third enlargement countries. Because of these they were able to adapt themselves to the acquis of the Union swifter.

If it is necessary to express some details. Negotiation period of EFTA enlargement lasted 13 months. This time period was quite short for the completion of this process. Some reasons of this short period mat be stated as follows: First, EFTA benefited from the close trade and economic relations between them and EU before the adhesion period. Because of this reason, negotiations did not focus neither the technical subjects which express implementation and enforcement of acquis, nor on substantive level which express policy alignment. Difficult points of the negotiations were the areas in which candidate countries were interested in . This may be stated as the first reason. Second reason may be recorded as the treatment of the Union more flexible, relative to the previous enlargement waves, in the subject of the implementation of acquis. This loosened treatment was caused by the economic states of the candidate countries. This time candidates were not so much “dangerous”. EFTA countries which were making contributions to the budget of the Union were welcomed with a warmer mannr.38(IBID)

These reasons may be counted as the economic reasons and economic position of this enlargement period. The next enlargement was after 9 years.

1.5. Fifth Enlargement Wave

We shall evaluate this enlargement wave broader than the others because of several reasons. First, this wave consists of different events which were firstly encountered in the history of the Union like the establishment of the criteria for adhesion to the Union, declaration of the White Paper, and the announcement of the agenda 2000. Another side is about the new member of the candidates. There were 10 candidates for the full membership to the Union. Broadly speaking, Union was not accustomed to this kind of enlargement wave.

EU membership helped these countries to consolidate their return to pluralist democracy and market economy. This is another factor.39 (Wim Kom)

Shortly after the fall of the Berlin Wall in 1989, the European Community established some diplomatic relations with the new democratic countries of the Eastern Europe. Also, Community removed quatos, extended the Generalized System of Preferences, and concluded several agreements for trade and cooperation. 40 John Gillington

Relations between EU and Central and Eastern European Countries (CEEC) started to accelerate. At the end of this abolishment, it had been come to a point where it was representing a reconstruction period in terms of Europe's security and economic benefit. And the other institutions, like European Council started to negotiate and discuss about new Europe. 41 Erhan Ercin

After these processes, Union and CEECs desired to integrate mutually with the free market conditions and experienced it. With this desire, Union tried to keep away a returning of the CEECs to the communism.

Afterwards, Hungary, Poland, and Czech Republic signed with the European Communities the European Agreements in 16 December 1991. These agreements came into force in 1 March 1992. The aim of the European Agreements was making these countries member of the community.

1.5.1. Phare

In 1989, with the decision of Strasbourg Council, there was constituted an aid program under the name of PHARE( Poland, Hungary: aid for restructuring of economies). PHARE program was, previously, consisting of only Poland and Hungary. However, subsequently, Bulgaria, Czech Republic, Yugoslavia and Romania had been taken into this process. In September 1991, Albania, in January 1992 Estonia, Latvia and Lithuania, in August 1992 Slovenia had been included to the program.

PHARE program was designed to support the reform proves in the recipient states. It was initially targeted at Hungary and Poland, by EC, 500 million ECU was allocated in 1990 budget and afterwards, the other countries were included and this amount was raised to one billion dollar ECU in 1992.

PHARE program are the ones which focus on aiding in form of financial and technical platforms. By PHARE, it was aimed to constitute the progressive conditions which encourage investments and also encourage the free market conditions. Priorities of the program were the encouragement of the development of private sector and encouragement of trade.

In fact, PHARE was the main financial aid for the CEECs which was used as the pre-membership strategy. Since 1994, use the PHARE was determined according to the priorities of CEECs and to their needs.

1.5.2. European Agreements

After these, European Agreements were extended to other countries. Signature period of European Agreements was between December 1991 and June 1996.

European Agreements were signed to determine the frame of the relations between states and associate members. 42 (IBID) The European Agreements intended beyond the scope of traditional association agreements in making provision for political and cultural dialogue and cooperation. 43( IBID)

EU removed its trade barriers before than the partner countries remove theirs, though the actual timetables and the sectors to which they apply vary with each agreement, largely depending on the sensitivity of the products involved. 44 ( Christopher Preston)

Afterwards, EU abolished all tariffs starting from 1995 but not the sensible products.

In the mentioned agreement, five main scopes were contained: Free movement of goods, free movement of labor, services and capital, the appropriation of the competition policy and the laws, economic cooperation, the arrangements about the fiscal cooperation.

European Agreements estimated the free trade of industrial goods after a definite transition period. From this perspective Europe allowed the circulation of the industrial goods from 1995, but restricted the agricultural goods and textiles goods and some few sectors.

Afterwards, the European Agreements were re-regulated for facilitating the process of the full membership of these countries.

1.5.3 Copenhagen Summit

Copenhagen Summit is a turning point in the history of the enlargement of the European Union. After this summit well-known Copenhagen criteria were announced. These criteria were about the conditions for a country which desires to start accession negotiations and also desires to be a full member to the Union.

After the Copenhagen Summit in 1993, the relations between EU and CEECs was transformed into a different and precise manner.

In fact, already by 1993, the EU was under increasing pressure to set out its policy on the further enlargement to the east even before the enlargement were completed and this was what the Union made definitely, clarified the responsibilities which required the enlargement.

It was taken and clarified and stated the Copenhagen criteria during this summit. Moreover, these criteria would be moved for the other enlargements. They were stated as: “ Membership requires that the candidate country has achieved stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities, the existence of a functioning market economy as well as the capacity to cope with competitive pressures and market forces within the Union. Membership presupposes the candidate's ability to take on the obligations of memberships including adherence to the aims of political, economic and monetary union.” 45 (IBID)

It was the most precise shape of the procedure of the full membership conditions in the history of the Union which had three enlargement periods before. It was decided that countries which are desirous for full membership, and which fulfill the Copenhagen criteria would access to the Union as full membership.

Moreover, the Union recommended to the CEECs a structural relationship with the institutions of the European Union. Also, the Union declared that it would continue to the financial assistance within the frame of the PHARE.

Although it was greeting with gladness, the decisions taken from the Copenhagen Summit 1993 caused to an uncertainty from the side of the CEECs because it was not given a concrete schedule on the road to the full membership.

This fact indicated two different situations. With the Copenhagen summit in 1993, it was given new gains to the countries which were on the process of the integration with the union, and the relations were moved to a closer manner. However, the protections carried out by the Union to the agricultural goods and the anti-damping applications affected the CEECs negatively.

1.5.4. Essen Summit and Essen Straregy

In December 1994, at the Essen European Council, the member states accepted a broad pre-accession strategy. The council recognized that negotiations on the future enlargement of the Union would go beyond those states already associated but would encompass other CEECs. It called for European Agreements (EA) to be concluded with the Baltic States and Slovenia. 46 IBID

Essen Strategy, or it is called pre-accession strategy, was based on four basic pillars: Coming into force of the European Agreements, supporting of the reforms made in candidate countries on the frame of the PHARE, the harmonization of the laws of the candidate countries to the single market, and forming a structural dialogue with the candidate countries.

At the Essen Summit, the member states met the Central and Eastern European Countries which were associated with the EU through the European Agreement.

With this pre-adhesion strategy, it was pointed out the main road of the adhesion of the candidate states, CEECs, t the Union.

It was decided, in Essen Summit, to prepare a report which aimed to facilitate the integration of the countries that signed cooperation agreements with Commission.

1.5.5. White Paper

The most important part of the pre-accession strategy was the White Paper, which was prepared by the Commission and presented it to the Cannes European Council in June 1995. That report named as ‘ White Paper' and it was concluded in May 1995.

The White Paper provided both a conceptual framework for the definition and delineation of the internal acquis and a detailed list of all the relevant legislation and policies in different sectors.

White Paper was presenting an enriched content. And it was also bringing up the differentiated manner of the Union in this enlargement process, different from the past enlargement experiences, and also was indicating the more programmed frame of the Union for this enlargement period.

First of all, the White Paper stated the main features of the internal market, its legislative areas and the administrative and technical structures ehich are necessary to ensure that the legislation is effectively implemented and enforced 47 ( IBID) and also it was completed the free movement goods and the lifting up of the barriers.

Also, on this frame, it was examined the available acquis, applications of the CEECs and stated also the special difficulties which might be met by CEECs. 48(IBID)

Commission recommended to the candidates the precautions they should take and mentioned about the benefits of the applications in case of putting them into practice according to the view of the Union.

It may also add that, ‘ alignment with internal market' is not the same issue with the accession to the union. White Paper is not a part of the accession negotiations and it does not contain the acceptance of the acquis communitarian are whole.

White Paper, does not constitute a legal enforcement for the candidate countries. But it states the responsibility for adjustment. Moreover, it is among the reasons of the report that the increasing integration and trade between the Union and the CEECs.

With the regulations of the White Paper, it was aimed to facilitate the trade by fixing industrial standards and by acknowledging the appropriateness of the commodities mutually, by constituting the conditions in advantage of these countries.

1.5.6. Agenda 2000

In the 1995, Madrid European Council, the European Council asked from the Commision to submit its opinions about the situatuons of the CEECs for the membership. The Commission's report was ‘Agenda 2000' and it was ready in June 1997.

Agenda 2000 was consiting of the Commision's recommendations for the Union's financial framework for the period 2000-2006. It consists of the future development of the Union's policies, and in partuclar two most important sepnding policies- the cohesion and structural funds, and the Common Agricultural policy (CAP); and the strategy for enlargement of the Union.

It may be classified in three main areas; the principal questions which arise for all applicant countries on the way to enlargement, the strategy for enlargement, including accession negotiations and the strengthening of the pre-accession strategy, final recommendations.

Agenda 2000 is a strategy paper which states the growing and strengthening perspectives of the European Union and consists of 1300 papers?... European Commision published it on 16 July 1997. It consists of four main frameworks: Enlargement, CAP, changes in structural funds, finance of European Union.

EU Commision's reports of the candidates are related with Bulgaria, Slovakia, Slovenia, Romania, Latvia, Lithuanina, Estonia, Hungary, Poland and Czech Rebublic. Commission proposed to the European Union Council of Ministers to start negotiations with Poland, Czech Republic, Hungary, Estonia, and Slovenia in 1998.

Also, EU commission proposes to sign of a strategy paper which will prepare the candidates to the full membership; named as accession partnership.

In 1998, Union decided to monitor these 12 countries by the regular reports which evaluate their political and economical positions and their harmonization to the acquis of that year.

On 3 April 1998, except Malta, screening period of 11 countries, including Bulgaria, started. Malta's screening period finished on 11 December 1999. Negotiations started with Poland, Czech Republic, Hungary, Estonia, Slovenia and Cyprus on 31 March 1998. Negotiations with Bulgaria, Lithuanina, Malta, Romania and Slovakia started on 15 February 2000. 49 (Basbakanlik dis) These countries completed their harmonization period and became new members of the Union in May 2004 except Romania and Bulgaria. These two countries process is going on!!!!!

2. HISTORICAL BACKGROUNG OF TURKEY- EUROPEAN UNION RELATIONS: ECONOMIC AND POLITICAL PERSPECTIVES

2.1. Political Dimension of the relations between 1960-1999

In this section we shall talk bout the relations between Turkey and European Union with a historical and political sense to understand the development of the whole process. Also, we shall evaluate some important summits which are related to Turkey, its candidacy, and its adhesion to the enlargement process.

Turkey applied for Associate Membership of the European Economic Community on 31 October 1959. This application was shortly after the Greek application (15 July 1959). With this application and its results, Turkey desired to make an economic alliance with the “West”. However, during this period, there were, inside the Community, critical problems against Turkey: “ Turkish application was at a time when the EC had focused on its own problems under Gaullist pressures. Moreover, several members of EC, notably France, showed reservations about Turkey's European identity and cultural issues.”1 Erkan Erdogdu

Turkey was the second country which applied for Associate Membership, after Greece, and the most important factor for this application was the desire of Turkey not to leave Greece alone with its application. 2 (Ridvan Karluk)

The Council of Ministers approved applications and afterwards, negotiations starred on 29 September 1959 between Turkey and the Community. After a short period of time, the negotiations had been ceased because of the military intervention on 27 May 1960 in Turkey and they could start again on 14 October 1660. Finally, Ankara Association Agreement was signed between Turkey and EC on 12 September 1963 and this agreement became effective on 1 January 1964.

The Turkey-EC Association Agreement was designed as a stage by stage integration process towards eventual full membership in the EC 3( hadi selefi) and projected three stages for Turkey-EC relations:( Preparatory, transitional and final. 4 Erkan Erdogdu

Preparatory stage was intended to be a period in which the Community would hive unilateral concessions and financial aid to Turkey while turkey would take appropriate measures to improve its economy and prepare itself for the transitional stage. 5(IBID)

After preparatory stage the transitional stage was on the aim of forming a customs union between EC and Turkey which takes 12 and 22 years. Also, the agreement included the possibility of a third final stage, which would bring Turkey to full membership. 6( IBID) After a successful completion of the two stages, prepatory and transitional stae, a stage by stage integration process would reach to a customs union. Also, the agreement stated a vague promise of full membership of the Community at some undefined date provided that the appropriate conditions had been satisfied. 7( Ziya Onis)

But the important point was that there was not stated any specific date for full membership. With Ankara Agreement the process had started with preparations for lowering of trade barriers and afterwards at later stages would be allowed for free mobility of labor between Turkey and the Community. But the timing of this agreement was interesting and was also ironic because during that period, Turkish policymakers were instituting import substitution industrialization (ISI) policies. 8 Hadi Salehi Esfahani

During the preparatory stage (1964-1972), Turkish economy indicated a swift and stable economic growth. EEC yielded the foresighted economic aid. 9 Orhan Morgil. During 1960s, Turkey's economic relations with the Community did not show big changes but the structure of the Turkish economy was changing; industrial sector and services were rising, meanwhile, agriculture sector was declining.

The second stage between Turkey and EC was including the establishment of customs union and for this aim the Additional Protocol was signed between two sides on 23 November 1970. It was more important, in practical terms, than the Ankara Agreement. According to this protocol, the EC would abolish tariffs and quantitative barriers to its imports from Turkey ( with some exceptions), whereas Turkey would do the same in accordance with a timetable contaning two calendars set for 12 and 22 years. 10 Erkan Erdogdu. At the end of the period, it wanted to establish a full customs union between Turkey and EC.

And after a short period of time, Greece was accepted as a new member within the second enlargement wave. Interestingly, in 1978 and 1979 the EC suggested that Turkey should apply for membership along with Greece, but Turkey declined this suggestion. During the following period, Greece caused to some difficulties on the way of Turkey's membership to the EU.

Turkey did not apply, but the end of 1970s with Greece; it may be evaluated as a slef-exclusion. In addition, Turkey's exclusion form the Community at the time of its southern enlargement constituted a case of self-exclusion as opposed to exclusion by the community itself. 11(ziya onis)

But it is impossible to know the answer of the Community whether Turkey would applied during that process. One of the significant problems was Cyprus. Turkley …….

By 1980, Turkey was economically, and also politically, in a huge crisis, the blame should go to the country's political institutions that failed to motivate prudent policy making and lacked the potential for systematic reform when their failures became apparent. 12 Hadi Salehi Esfahani.

Finally, on 12 September 1980, the military intervention hampered the relations between Turkey and EC for six years, up to 1986.

During the 1980s, Turkish economy and political environment experienced huge structural changes. Between 1980-1983 military forces was governing. In 1983, after general elections military forces left the government. The new government, Ozal's government was aiming to start close relations with EEC.

Relations remained more or less frozen until the mid-1980 when Turkey indicated both its stability and readiness to make domestic reforms. 13 Erkan erdogdu. Among these opportunities for economic reforms Turkey submit an application to IMF.

After these periods, the government appied for full membership of the European Community on 14 April 1987. The application was accoding to article 237 of Treaty of Rome, article 98 of the European Coal and Steel Community. This application was a surprise dfor the community.

The Turkish request was defined rather diplomatically, as ‘bold' in Europe and evaluated as a tactical move to overcome the deadliock in Turkey=EU relations. 14 (IBID)

The answer was declared after two and half years, and the European Council rejected the application. We may evaluate the refuse with the perspectives of the inner dynamics of the Union and with the position of Turkey economically and politically.

As for the Turkey's position for membership, Commision stated some obstacles which can be summarized as: “Major structural disparities between EC and Turkey, high levels of inflation, unemployement and industrial protection, low levels of social protection, inadequate problems with one member state of the community.

The second branch of the negative response if the community was related to its ‘inside' problems. The community was trying to integrate with the new members of the Union. So, the community closed its doors to new members for a period of time; therefore , the EC could not initiate any new accession negotiations before 1993 at the earliest/ 16(ibid)

More specifically, the response pointed to a number of deficiencies of Turkey's record both on the economical and political side which rendered Turkey an unlikely candidate for the full membership/ 17(Ziya onis). Turkish government was well aware that EC integration would be a long drawn-out process and this process would require a huge effort. 18 (Mary Starng)

EC suggested Turkey to improve relations within the framework of the association agreement, signed in 1963, and to conclude with the customs union. With this suggestion, EC, finally, decided on a new strategy to keep Turkey within, the sphere of influence while postponing indefinitely the opening of accession negotiations. In this context, the E regarded the customs union as a necessary price and tool to keep Turkey pro=European while denying membership.

2.2. Political Relations Related with rthe csandidacy of turkey for full membership

2.2.1 Amsterdam Summit

Before the Luxembourg Summit, the presidents and prime ministers of the 15 member counties came togetherin Amsterdam Summit on 27 June 1997. Turkey was also invited to the meeting with the participants of CEECs. But it was not forgotten the statement of the information that; with this invitation, Turkey's applicant country status was not changing and it was not transferred to a candidate member status.19(Muhsin Kar) During that period the relations between Turkey and Union was seriously blocked and trobled.

2.2. Luxembourg Summit

The Luxembourg Summit was a turning point in the relations between Turkey and European Union.

In this summit, the Union desired to give an end to the ‘divided' Europe. Before the Luxembourg Summit, Agenda 2000 was established and, in this report, Turkey was excluded even from the candidacy of the membership. The report repeated the classical political and economic arguments against Turkey and made no reference to Turkey's full membership objective. 20 erkan erdogdu

Start of the negotiations with 10 CEECs and also with Cyprus and Malta for the full membership had been approved as a decision of this summit. Moreover, with six countries it was decided to start the adhesion negotiations from arrive of 31 March 1998. These six countries were Portugal, Czech Republic, Hungary, Slovenia, Estonia and finally Cyprus. Moreover, for Turkey , they were not provided a pre-adhesion program.

Turkey was invited to the European Conference but Turkish authorities rejected this invitation. The Turkish government found the Commision's approach discriminatory and emphasized the contrast between the pre=accession strategy devised for other candidates and the ‘ European strategy' for Turkey which consisted simply of a set of ideas whiose fainancin=g remained uncertain. 21 IBID

EU Commission established this strategy on 4 March 1998 and it was including 4 areas: Adhesion Cooperation, National Program, Adaption Schedule, Adhesion and Control System to the EU programs.22 Ridvan Karluk.

One of the decisions that were taken in Luxembourg Summit was the preparation of the regular reports about the candidate countries, As it can easily guessed Turkey was not included to this process.

It will be useful to mention briefly about some aspects of the subject. During 1980s and 1990s, political elements started to gain more importance in the structure of the Union. And deficiencies of Turkey about human rights much more restricted the relation between Turkey and the Union. Political and economic deficiences were brought to Turkish side after the customs union period when Turkey desired to accelerate the full candidacy process. However, as it will be evaluated later, political problems were brought to Turkish side more than economic ones. European Union expressed political criterion of Copenhagen criteria which obstructs the full membership desire and the wish of Turkey for the start if the full membership negotiations much more than the economic criterion. EU gave more importance to this side of the picture.

2.2.3. Cardiff Summit

After the Luxembourg Summit, Union excluded Turkey from the candidacy status. And after a period of time EU started to accelerate the relations and for a closer perspective declared the ‘European Strategy' in March 1998. In fact, this may be evaluated as correction which made on the Cardiff Summit on 15-16 June 1998 after the Luxembourrg Summit. The conclusion may be summarized as follows: “ The European Strategy which had an aim of the preparation of Turkey for the full membership was ratified by the European Commission, the Commision was charged in the preparation of a regular report about Turkeu like the candidate countries/” 23 Muhsin Kar,

2.2.4. Koln Summit

European Common Defence Union's basis was constituted during Koln Summit on3-4 June 1999. In this summit, a text was apreapred by Germany which was regulated according to the expectations of Turkey. It could not be from one of the decisions of the summit, however, refuse of some members, especially refuse of Greece, stopped the ratification of this text.. However, conclusuion of the Summit was as follows: EU will contunie to the preparation of turkey to the full membership. It will designate a calendar for preparation.

Turkey stated after this summit its pleasure from the efforts of the summit on the subject of getting an equal status with other candidates, but did not fond it sufficient.

2.2.5. Feria Summit

Feria Summit came together on 19-20 June 2000. TheEuropean Council declared that they were observing Turkey's harmonization with the accession criteria. 24 IBID

2.2.6. Nice Summit

Presidents and prime ministers of the member countries came together, in Nice, on 7 December 2000. In this summit, structural reforms

2.2.7. Helsinki Summit and the Candidacy

In december 1999, Helsinki Summit came together and Turkey was accepted as candidate country for the full membership to European union. This summit was full of fluctuations and finally with this decision a new era had started for both Turkey and European Union in their relationship.

Only two years after from the Luxembourg Summit which was refusal, Turkey was accepted as a candidate country with an opinion change, in Helsinki Summit in 1999. Structure of the Union and diverse factors were effective on this decision.

Historically, the foreign policy of the EU has always been characterized by paradoxes and ambiguities. This is , in part, due to the obvious fact that EU is not a unitary actor in the traditional sense and sometimes conflicts between individual member states can inevitably occur in contradictory foreign policy behaviour. 27 Ziya Onis Moreover, Turkey was not outside of these conflicts and the Union may take contradictory decisions about Turkey. But in detailed form we can observe some reasons about the acceptance of candidacy of Turkey.

On the other side, in 1999, the union was consists of 15 members and these countries were in voting process according to their own politics and also according to their situation in EU politics.

The foreign policy of the Union was oscillating between the principles of idealism and the perspectives of benefit decisions. Idealist part of the Union excluded Turkey form potential membership. In Luxembourg because of Turkey's deficient records in terms of democracy and human rights.

On the other side, Turkey was an important economic and strategic partner. Moreover, in 1998 and 1999, there was recognition by the European Political authorities that Europe's economic and security interests would not be adequately served if Turkey was allowed to be isolated. 28 IBID

The domestic politics of key member states such as Germany, but also Holland and Belgium, give an idea, especially in Germany, about the changing decisions of the Europe and the acception of Turkey's candidacy. A large Turkish minority has started to make known their influence in German political scene. During 1960s'years that Turkish workers started to migrate to germany, Turkish workers were interested in and were working in the manual tasks which the Germanswere not willing to accomplish, But the formation of the Turkish workers in Germany started to change compared to the first generation of workers. The second or third generation was more active in economic life and some of them were feeling themselves as a part of German society, and they do not have feelings abot returning to Turkey. these groups ‘economic power in Germany seemed to be influential force between the two countries' relationship. This factor should not be forgotten on the road to Helsinki between the 1997-1999 period. 29 IBID

Another factor about the establishment of 1999 Helsinki candidacy approval was, ironically about Greece. After Greece addition to the Community in 1981, there occurred many problems between Turkey and Greece; however, in 1999 Helsinki. Greece support was effective for the Union's opposite decision. We may count some reasons about this close and affirmative attitude for Turkey's membership. First, we should state the effects of the earthquakes in 1999, and their effects which caused to closer relations. Certainly, this emotional effect was one side of this support. On the other side, Greek politicians realized that it would not be advantageous platform for Greece's economic and strategic interests if Turkey had left isolated. Also, two countries had trade relations, tourism and they could be frustrated in the event of isolation of Turkey, or even they would not be improved. Moreover, the effect and pressure of the United States can also be added to that decision. UNITED states persuaded and pressed for the candidacy of Turkey, because its interest in the middle east and the Central Asia. It was given to turkey candidate status but without a timetable for accession. 30 IBID

And as a part of this pre-accession strategy, the Commission prepared the first detailed report on Turkey, and it was presented and accepted at the NICE EUROPEAN COUNCIL in December 2000.

4th, 9th and 12th articles of the Helsinki summit were related to Turkey. It was intended to include Turley, like the other candidate countries, from the adhesion cooperation strategy. For this cooperation it was necessary to determine the areas which had priority for the adhesion process. Also, it was decided for Turkey to participate in EU programmes agencies about enlargement process. Another side was related with the national programme. It was desired to prepare a national programme which was containing a undertake the acquis of the European Union. Another decision was about the screening period. There was decided to commence a screening period for turkey. This would benefit from the financial aids rhe candidacy period. 31. Ridvan Karluk

2.3 Economic situation Of Turkey between 1960-1999

In the beginning of 1960's in Turkish economy, new strategies were started: Import-substituting industrialization strategy and development planning. Import-substitution industrialization strategy (ISI) had been implemented during the period between 1960 and 1979. During this period Turkey recorded high economic rates. Elif Cepeni

The import-substitution strategy which was continued until 1980 was designed to manage to make Turkish economy independent in the production of manufacturing goods. And also for planned and coordinated development in 1960, it was designed a state planning organization (SPO). It was trying to project the economic and social precautions which should be taken. The SPO prepared 5 year development plans. They were mainly both for the public sector and private sector. 33 IBID

However, during the construction of ISI policies, it was a paradox that the signed 1963 Amkara agreement was containing lowering of trade barriers and for progressive levels it was allowing for free mobility of labour between Turkey and European Community. 34 Hadi Salehi It was tightly implemented constants for almost all industrial goods apart from ‘processed food stuff, textiles, iron and steel'. Substitution for consumer durables was the first group which was coming from abroad.

Implementation reasons of ISIs were their help for the development of Turkish economy. Some Turkish politicians thought that this protection was essential for Turkey's industrial development. 35 Ibid

We should also state that Turkey continued to the ISI over exports and industry over agriculture from 1950 to 1979. These efforts may be named as inward oriented development strategy. Until mid 1960s Turkey tried to replace the imports of non-durable consumer goods by domestic production. By the mid-1960s turkey was able to satisfy the domestic demand for those commodities. 36 Elif Cepni.

During the period implrementation of ISI policies, there were not recorded huge differences in the area of the relations between turkey and the Community I economic sense.The same is valid for the relations of Turkey with the rest of the world.

It could chose embarking on exportations of manufactured goods or it could chose the imports of intermediate goods, such as steel, refined products, petrochemicals, and consumer durable, such ad vehicles, refrigerators, by domestic production. Turkey used the second strategy. But this preference has some different specifications from the first choice. These commodities were highly capital intensive and also they required the availability of technical and skilled labour. They were subjet to economies of scale-with effiecient plant high protection of these industries. Turkey achieved this high protection level by tariffs, qutas and overvalued exchange rates.37 IBID

During early 1970's, Turkish economy was experiencing a structural change and during these years the country confronted a rapid expansion in the area of trade, while the process of Turkish currency was devaluated and protection rates were lowered in 1970 and 1971.38 Hadi Salehi. In the midst of the 1970s, Turkish economy started to go away from stable growth rate and inflation rate of the development program which was implemented between 1963-1970. 39 Ridvan Karluk.

And also in 1973 and 1974, we may state that there was a huge increase in oil-prices which had increased to four times of the former stage and when this situation came together with the bad economic situation of 1970s, Turkey's trade balance had worsened with a serious deterioration40 Elif cepni, and general economic situation stared to become more problematic.

According to an another interpretation, after the increase in oil prices Turkey did not make the necessary arrangements and also did not take the required precautions at the proper time which were related with monetary, fiscal, exchange rate and encouraging policies. Because of these deficiencies Turkey confronted some serious problems. High inflation rates and exchange rate bottlenecks may be counted as from these new serious phenomena. Moreover, gradually, it was recognized that the import substitution policy was coming into its boundaries. At the beginning of 1963 Turkey started to implement five year-developng programme and also started to import substitution policy and with this issue changed its policy. 41 Orhan Morgil

At the beginning. Import substitution policy became successful and Turkish industrial sector indicated a swift improvement. However, 1975 indicated the boundaries of this policy. Moreover, industrial sector started to ve confronted bottlenecks. Oil crisis accelerated this bottleneck situation. However, at this point, the implemented policy was not changed from import substitution to a policy which is more effective. Policy change implemented after 1980. 42 IBID

Interesting point here was the misunderstanding of the improvements and the failure of the non-organized political life. These may be added as the reasons of the hard economic conditions.

As it was stated earlier, in 1973, Additional protocol was signed between Turkey and the European Community. By this protocol, EU was undertaking lowering trade barriers for most of Turkish manufacturing exports, without reciprocal liberalizaiton. But it had a reverse result that Turkey's increasing foreign trade had been stopped and had become more volatile. It should also be added some factors about the advantages stated above. First, the areas of food and footwear were included to the agreement. But the main comparative advantages of Turkish industry were focused on these areas. Second, it was observed that the first oil shock was resulting slow growth and instability around the world, with Europe. This was causing to a negativeeffect to Turkish producers who wanted to invest and export. Also, the Cyprus problem with Greece and maintaining desires of some politicians about the high proportion of turkey's industry to continue to the liberalization of imports and with these factors in the background, they were not eager to reciprocate the European Union's unilateral liberalization. 43 Hadi Salehi

Under these conditions, ISI was continued to be implemented during 1970s. towards to the ends of 1970s, we may draw a general view as follows: increasing economic problems and some political problems which Turkey had confronted and these problematic situations caused to a quiet chilly postion between turkey and the Community.

Another effect of oil shock in Turkey was the permission of the government for the appreciation of real exchange rate and the permission of abolishment of trade barriers. At the same time, for the increase of public and private investments, expansionary fiscal and monetary policies were implemented. These policies caused to GDP growths. Also structural changes in investments continued during his period even they were slow. On the other hand, economic conditions and economic environment started to change with the coming 1977 with a slow manner. Foreign borrowing costs increased, GDP growth declined and inflation commenced to increase. Moreover, Turkey was amge3d by the major debt crisis of 1978 an was exposed to hyper-inflation. Also, huge declines were experienced in GDP.44(IBID)

If we add political ambiguities to these effects which we mentioned above, Turkey met 1980s with a depressive position.

On the side of Europe, the general position of Turkey was quite interesting during this period. At this point, instead of the recovery of economy and of economic process, on 25 May 1978, for the period between 1979-1983 it was decided from the Turkish government to freeze the liabilities agaist the community. The relations which were stated in Ankara Agreement and in the Additional Protocol were frozen. However, this decision was withdrawn in February 1980. 45 Orhan Morgil

While 1980s were starting, Turkey experienced a military intervention. Turkey also experienced different political and economical issues after this military period which started with the 24 January decisions.

When we come to the 1980s, first, we meet the 24 January decisions. We may state that deterioration of economy towards to the middle of 1970s and at the end of 1970s, and the military intervention triggered and caused to the 24 January decisions.

It would be better to state the background of 24 January decisions within a broad sense. By doing this, we shall also examine the issues after 24 January 1980 with another interpretation.

Late 1970s crisis waqs the biggest one that Turkey met up to that time for last 30 years. It may be classified as a typical crisis of the inward-oriented, import substituting model of industrialization (ISI) which was supported with a huge proportion of protected domestic markets. Nevertheless, in this model, it was easy to be influenced by the generated oil price shocks. The ISI model of development could not manage to be successful on the area of a sustainable economic growth and also had problems with the balance of payments crisis.

General summary of the 24 January decisions are as follows: it was seen a money devaluation about %50. The exchange rate increased by the ratio of $1=47 TL to $1=70 TL. Price controls on may commodities were abolished, lifted. There were renovations in the financial system. The prices of many commodities which were produced and distributed by the public sector allowed increasing. This made the controlling of the budget deficit easier. Before, prices were held lower in order to prevent relatively poor public. The trade system changed. A more liberalized trade system which also supports the export promotion was adopted, which also may be called as growth-oriented adjustment strategy. Liberalization of the financial system started. 46 Elif Cepni

After this period, positive and negative processes were experienced in Turkish economy. However, this transformation period and the following period of this liberalization period of this liberalization period had both positive and negative effects for the following years of the Turkish economy.

Start of the economic policy reforms in 1980 was implemented by the helps pf International Monetary Fund. During this period, the program caused to increasing trend of devaluation of Turkish Lira. Also, with the effects of this program many import tariffs were reduced. There were increases in income taxes to compensate for the loss of tariffs and other indirect taxes. These precautions diminished the budget deficit and Turkey, during this time, needed less necessity to print money. At the beginning of the economic reforms in 1980, the debts of government followed a relax period, however, during the following years government allowed tax revenues to decline. But they were not taken precaution during this period for the reduction in expenditure. This factor caused to the increase of the debts. Also, this debt problem became much more problematic after 1983. 47 Hadi Salehi

During this period, there had been started to seen some difficulties relatively, to the period before 1980.

The program brought into force in 1980 was containing of short term stabilization and also longer term structural adjustments. This was the start of a tutkish experiment in neo-liberalism. The program may be defined as radical. It ried to establish a stage by stage liberalization. The most interesting side of the neo-liberal implementation of Turkish economy was about the increase of the exports. 1960s'and 1970s'inward-orientation economy became more open to the external world in 1980s and 1990s. 48 Ziya onis

However, after this liberalization program Turkish economy was more dependent on interest rates. This caused to increase vulnerability of almost whole sectors of the economy.

Turkish liberalization was intending to decrease state's role in economy and was also intending to increase the proportion of the private sector's role. During 1980s, the public investments were canalized from manufacturing to infrastructural activities woth an increasing rate. Former shape of more balanced economy between public and private spheres was changing with this process and private accumulation was getting the dominant form of the economic activities. 49 IBID

It is useful to investigate liberalization of Turkish economy into two sub-periods. These periods are 1980-1987 period and the period post- 1987. we may also separate the period after 1980 to 1987 into two sub-periods. The first is the period between 1980 and 1983. The second is between 1983-1987. The main difference was about democratic dimension. During the first phase, it was relatively easy to implement reforms in the direction of liberalization. 50 IBID

The period after 1987, demonstrated a different structure. This second part was less successful in reducing inflation and also was less successful in the performance of growth rates. Growth rates of 1990s were more dependent on highly fragile and reversible short-term capital. And also domestic borrowings with high interest rates caused and contributed to this instability. Its effects were already seen at the end of the same decade. 51 IBID

After these explanations, we shall finish this observation of the decades by evaluating 1990s from a familiar perspective. Turkish economy experienced 1994 and 1999 crisis during 1990s.

1990s were not an easy period for Turkey. Turkish economy has been characterized by a high degree of instability and recurrent crisis, especially 1994, 2000, 2001. It is obvious that relative failure on the economic front has not affected positively Turkey's relations with EU. During 1990s the effects of the Customs Union and related conditionally played a serious role in the economic liberalization even in positive and negative senses. Even though there was not seen a visible date for the full membership, the EU anchor was effective. However, this anchor should be classified as a weak anchor; it was effective in terns of inducing the key domestic actors to undurtake radical steps for the political and economic reforms. 52 ZIya Onis

It will be fair to say that both external and internal factors were together compressed Turkish economy during 1990s. It is useful to count some of them as negative external shocks as the Gulf War between Iraq and United States, the problematic position in South-East of Turkey during 1990s and the terrorism of a group (PKK), the earthquake which occurred at the end of decade, and also several crisis at the external economies. 53 Ziya Onis

However, these do not prove that there was no internal problem during this period of time. There were economic factors which caused to the instability of the whole economy.

Main reasons for these crises may be counted as: the development of an unsustainable domestic debt dynamic and the unhealthy structure of the financial sector, with particular problems caused by the state banks and by the failure to address structural problems. 54 Elif Cepni

It is an interesting point that the ratio of net public sector debt to GNP increased with a great proportion from %29 to%61 between the years 1990 and 1999. the increase in domestic debt stock is bigger. The rate of net domestic debt to GNP was recorded as %6 in 1990. However, it demonstrated a huge increase and reached to %43 by 1999. 55 IBID

After these, we are going to evaluate 1994 crisis briefly. This crisis affected Turkish economy in a serious manner.

We shall mention about general reasons of the 1994 crisis which are related to current events of the process, they are as follows: Public deficit was too high. It reached to a sufficient rate for this event. High interest rates which were quoted by the banks. Treasury did not accept borrowing from the banks. It was to say that CB could not sbsorb the excess liquidity by open market operations. The downgrading aggravated the run on the Turkish lira. The government intervented by selling its reserves of foreign currency to stop the decline of Turkish Lira. Reserves were $6.3 billion at the end of March 1993 and they were recorded as $ 3 billion by the end of March 1994. CB did not intervened to this decline in foreign reserves and these pressures obliged government to devaluate the Turkish Lira by almost %14. The date was 27 January 1994. Another factor was about the short term debt from Baa # to BA 1. Standard and Poor's followed this institution, It declined the rating to BBB minus from BBB. Dates of these events were 13 and 14 January 1994. Price adjustment of state economic enterprises caused high inflation in April 1994. It increased from %107 to %125. 56 Elif Cerpi

As it is exoected, after this damaging crisis there were occurring some events and also government tried to take some measures.

After these process government declared a stabilization program on 5 April 1994. It is also known as April-5 stabilization program. With this improvement, government started consultation meetings with IMF. 5 April Stabilization Package was given to the IMF and Turkey desired from this institution because of this program a $740 million stand-by facility beginning in July 1994. This package was including some measures such as sharp increases in the price of goods produced by state economic enterprises, serious cuts in government expenditures, increases in taxes, acceleration of privatization of state economic enterprises. First wages amd afterwards, exchange rates were chosen as anchors in this package. The 1985 Israel stabilization programme was taken as an example and a similar programme was prepared. 57 IBID

Government succeeded in generating a small surplus in the budget during the second quarter of 1994, after running a deficit of %17 of GDP in the first quarter. Main result may be stated as higher taxes. The fiscal crises resulted in a decline of real GDP of %5 in 1994 after the robust of 1992 and 1993. Another deteriorated indicator was the real wages. Real wages fell in 1994. Average nominal wage increases of %65 were about %20 below the rate of consumer price inflation. 58 IBID

An important turning point in the raltion between Turkey and European Union was the establishment of the Customs Union, This stage began on January 1, 1996. The Customs Union (excluding agricultural products) came into effect in accordance with the deadline set by 1970 Additional Program. 59 Esra Hatipoglu

Customs Union decision was containing of a broader sense than it was predicted in Ankara Agreement. Full membership target and Union's structure after the Single Act and the Maastricht Treaty were effective in this broader Customs Union.60 Ilhan Tekeli

The decision of the EC-Turkey Association Council which lies at the core of this bcustoms union required Turkey to implement elimination of all customs duties, quantitative restrictions and measures of equivalent effect on trade in industrial goods in the relations between Turkey and EC, special arrangements for processed agricultural goods, the adaption of the EC's Common External Tariff by turkey, the adaption of the measures equivalent to the EC's Common Commercial Policy, progressive alignment of tariffs parallel with EC's preferential trading arrangements with third countries, the adaption of the EC's competition rules and the abolition of voluntary restraint arrangements limiting the export of Turkish textiles to the EC/ 61 Esra Hatipoglu.

After the establishment of the Customs union, trade relations between Turkey and EU did not change so much. EU's share in Turkey's export was %51.2 in 1995 and it was recorded as %52.5 in 2000. EU imports in Turkey's total imports were % 47.2 in 1995 and it was calculated as %48.9 in 2000. Before the Customs Union, in 1993, 1994, 1995, the EU's share in trade deficit of Turkey was %44.56, % 44.15, %41.09, respectively. In 2000, it was recorded as %45.15. These rates indicate that Customs Union did not cause important changes in Turkey's trade with EU. 62 IBID

3. ECONOMIC SITUATION OF TURKEY AFTER THE CANDIDACY

3.1 General Outlook

Turkey's accession to the European Union is closely related to the Copenhagen criteria. There are three sections of these criteria. These criteria can be classified as; political, economic and harmonisation of the acquis of the European Union. European Union laid political criterion down as aconditon for the beginning if the accession negotiations. Turkey reached to a satisfactory level in this criterion and accession negotiations started in 3 October 2005.

However, for a full membership, Turkey should perform all these conditions. During the accession negotiations, Turkey is going to work for these obligations.

After the full membership, new country confronts Maastricht criteria. These criteria are the convergence criteria to the European Monetary Union. They separate into four sections.

In this section, Turkish economy is going to be evaluated according economic Copenhagen criterion. This criterion includes two sub-sections: the existence of a functioning market economy and the capacity to cope with competitive pressure and market forces within the Union.

Definition of a functioning market includes several aspects. It requires macroeconomic stability, and consensus about economic policy. These increase and strengthen performance of the economy. Moreover, for a functioning market prices and also trade should be liberalised. There should not be any significant barriers to market entry and exit. Finally, sufficient importance should be provided to an enforceable legal system ehich includes property rights.1 Commission of the European. In this section of the study, these arguments are going to be evaluated in details.

At the end o each macroeconomic indicator a short comprasion between Turkey and CEECs is given. These comprasions represent the last years of CEECs before the accession of the European Union which are useful to comprehend their macroeconomic convergence to the full functioning market economy.

Moreover, in sections related to the Maastricht criterion is added for a similar reason. On the other hand, Maastricht criteria are not obligatory for the pre-accession period. However, converenge to these criteria indicates good and smooth performance of the economy and accelerates convergence to the European Union's economic markets after the full membership of each country.

3.2. ECONOMIC GROWTH

Growth rates and growth potential during the EU accession period of Turkey represent significant importance. Moreover, growth performance was an important objective of the 2001-2004 reform program. This objective also reflects macroeconomic stabilization and helps to structural economic program. Moreover, high growth rates cause and contribute to debt sustainability, reducing employment and also raising general prosperity of the whole economy.2 Reza Moghadem

Another Important point about growth is its importance of establishing a positive background for the full membership negotiations. Satisfactory growth rates prevent European Union's opposite perception. 3 Kemal Dervis. Moreover, a booming economy facilities to harminize all the domestic changes required for the full membership. 4 Daniel Cros

However, two severe crises occurred in 2000 and in 2001 did not let the economy find a smoother area and a booming performance. Starting from 2002, it should be evaluated wheteher a booming performance started to be caught. Macroeconomic instability prevented serial growth performance during especially 1990s.

Starting from 1990, Turkey's growth rates were not stable and wee oscillating with a big proportion. Adding a comparative figure makes this statement more meaningful. Serious increases and declines demonstrate the unstable performance of the economy; nevertheless, OECD countries' average is quite stable.

Figure….

In the past Turkey could not reach to estimated growth rates because of several reasons. It is useful to mention from them with a short summary. These statements are also going to take a serious and meaningful picture of Turkish economy.

- First trap is lack of confidence. Low confidence in macroeconomic stability and also in political got together. Moreover, high government deficits and debt levels caused to high interest rates, depreciations and inflation.

- Second trap is about governance. Shortcomings in public services and institutions come together with problems and mismatches in employment, wages and resources. These caused to the deterioritation of the quality of the services and the quality of public sector.

- As the third trap, problems mentioned above caused to increase the volume of the informal sector. Tax base got narrowed. This case affected the formal firms negatively. This situation is called as informality trap. 5 Economic Survey Of Turkey.

Portugal, a member of the E and Poland, a candidate , are two countries which were more stable than Turkey that reflects general growth paths of the EU countries. However, it is easily seen from the figure that Turkish economy was not confirming that situation.

Growth path of Turkey during 1990s was erratic and volatile because of its strong relations with flows of hot money. 6 Erinc Yelden. This statement is also valid for the post-2001 period.7 Turkey in 2005. however, after 2000, 2001 crisis, Turkish economy is one of the foremost economies of the OECD with the help of an exceptional performance. 8 Economic Survey. It is useful to reveal the sources of growth after 1999. Demand side growth sources were, mainly, exports, consumption expenditures and stock increases in the private production sector. 9 On economic.. Another characteristic of the growth of the period 1999-2004 was its jobless situation. Growth rates of this period were recorded with high unemployment rates. In spite of high growth rate, unemployment increased. This situation is named as jobless growth. 10 Turkey in 2005. A general summary is going to take place with the interpretations of the highlights of the period 1999-2004.

During 1999-2004, different sateges and features if growth potential took place. Turkish economy experienced two severe recession in 1999 and 2001. 1999 crisis was related with external factors. A strong earthquake was another negative factor for 1999 growth rate. However, the crisis in 2001 was caused by largely about internal factors; like accumulated weakness in the financial sector. Both of these crises caused to decline of economic activity of Turkish economy. Between these two years, in 2000, there had been recorded a small recovery. Nevertheless, recovery in 2002 was greater and stronger than that of 2000. 2002 growth rate had more solid base than the previous one and the general stabilization of the economy and economic policy were installed on stronger pillars. 11 Commission of the European Communities.

In 1999, real GDP growth was calculated as %-4.7. Several reasons were effective in this negative growth rate. 1997 Asian crisis and 1998 Russian crisis were effective external factors. Moreover, turkey witnessed, in the same year, high protection costs because of high domestic interest rates because of the unstable form of the whole economy. 12 TUSIAD

In addition to these negative factors Turkey confronted with one of the biggest earthquakes of her history. It took place in August 1999 in the industrial centre of the Turkish economy. This event affected 1999 Turkish economy and growth rates negatively. In general, 1999 was rge worst year in growth performance after 2001.

TABLE 1: SECTORS

Agriculture sector attracts attention with negative rates in each of the four quarters. It reached to its maximum point in the final quarter as %-8.3. This indicates that the earthquake might also be effective on agriculture sector even it is seen, first, related to the industrial sector. The most significant reduction was recorded in the construction sector. Trade sector followed the construction sector.

At the end of the year, on December 9, 1999, letter of intend was signed and the new standby agreement came into effect. This issue was consisting of a stabilization program. 4 billion dollar financial support came from IMF. Moreover, this standby agreement was in line with the agreement that the World Bank committed itself for 5.2 billion dollar. 13 Istanbul Chamber of commerce. This process was nearly at the same time with the acceptance of Turkey as a candidate by the EU which express an energy and momentum in the new way of Turkey for establishing macroeconomic stability.

In 2000 Turkish economy grew by %7.4. However, after the robust and strong output growth, economic activity started to decline at the end of the year with the November 2000 crisis. Growth rates of 2000 indicate a positive situation. November crisis did not affect these rates with a big proportion because it occurs at the end of the year.

In general, it is possible to say that, strong private consumption and high investment caused to this growth rate. 14. TUSIAD. Interestingly, stabilization program was aiming at a %5.5 growth rate. At the end of the year, target was exceeded with %7.14. 15 Istanbul chamber of commerce.

Expect this first quarter of construction sector, all the quarters at all sectors, positive growth rates were seen. Especially, trade sector indicated a huge growth potential with the highest rate of this year. Industrial sector and construction sector followed the trade sector. The agricultural sector's performance in the last quarter was also significant with a rate of %12.2. General view is as follows:

TABLE 2: SECTORS AND GROWTH RATE

In 2001, Turkish economy confronted with a severe decline of growth rate and GDP rate. The economy which recorded %7.4 growth in 2000 had experienced, on contrast, a sharp shrink that reached to %-7.5. These conclusions were the results of February 2001 crisis. Difficulties coming with the crisis and elimination of its damages took time and are still important.

In the spring of 2001, the new economic program commenced to be carried out. It contained of structural reforms and of a macroeconomic stability. The aim of the macroeconomic stability was establishing the stabilization and strength of the growth process. By this way, acceleration of growth rate in long term period was aimed. Moreover, this aim contains of also the protection of the country from recurrent and dangerous crisis which is not desired in the accession way to EU. 16. Marco Airaudo

2001 program cancelled the 2000 anchor exchange rate stabilization program. November 2000 crisis reflected the weakness of Turkish economy in the new exchange rate regime.

Together with several reasons, lack of confidence was the key issue of this crisis. In many area lack of confidence was main problem with the Turkish economy, however, was most effective financial markets. Panic in economic environments triggered capital outflows. 17 Tusiad. These cases were the basic pillars of the most important crisis of the Turkish economy in European Union way.

During 2001, the presumed growth rate was %-3 and this prevision was regulated in August as %-5.5, however, it realized at the end of the year as %-7.5. 18 Istanbul Ticaret odasi

Problems of the low growth rates come together with the effects of February 2001 crisis. Moreover, investment rate was quite low during in this period. Investments that would increase public production capacity were cut. Economic conditions and environment affected negatively and reduced the investments of the private sector. These factors deepened ‘low growth rate' of Turkish economy. 19 Cem Somel

Table 3: Sectors and Growth Rates

Agricultural sector recorded in the first quarter %8.5 growth rate and this was followed by a medium shrink with %-2.9, afterwards the deterioration increased. Industrial sector recorded this sector confronted with sharp shrink rates. Services sector recorded negative rates in all quarters.

Gross national product and growth rates, in 2002, express a serious recovery. In 2002, real GDP grew by %7.9 and reached to pre-crisis level. Main sources of the growth were exports and restocking. 20 Commison of the … Growth rates continued to display satisfactory rates in 2003 quite above program projections as in 2002. 21 International monetary fund…

The recovery in 2002 reflects that Turkish economy started to accelerate after the lowest point after acception of its candidacy. This recovery was the start point of the relatively better economic conditions after the crisis period.

During this recovery period Turkish economy benefited from external conjecture, however, because of the rpoblems in labour market and in real wages internal market's positive effects stayed lower. Industrial and tradesectors were the formemost sectors. 22 Tusiad. 2002 expresses the recovery year after the 2001 crisis during the post Helsinki period.

Growth in 2002 stemmed from significantly changes in stocks, moreover, exports of commodities and services were the triggers of this recovery. 23 IBID. Even though industrial and construction sectors recorded low rates during the first quarter they have positive rates. General situation was as follows:

TABLE 4: Sectors…..

In 2003, Iraq war affected Turkish economy; however, its negative effects did not spread out. Economy grew %5.8 in 2003 and this rate proved the persistence of the recovery. Industry and services were triggers of the growth.

TABLE 5: SECTORS AND

Stabilization program policies were successful in 2004 and caused several positive results as the unexpected rate of the growth. 2004's growth rate was quite high and this program proved that it helps the maintenance of sustainable growth. 24 Istanbul chamber of commerce.

In 2004, GDP growth rate was calculated as %8.9. Growth rate of GNP was recorded as %9.9. Growth of GNP was the highest rate recorded since1966. Growth performance of the agricultural sector was lower than the other sectors. Trade's growth was robust industrial sector's rates were sufficient. 25 State Planning.. General frame was as follows:

TABLE 6: Sectors

At the end of our evaluations about growth performance of Turkish economy, last 10 new members of the union and these economies' growth performance are going to be compared with the performance of Turkish economy during the same period.

TABLE &: Growth

Growth performances are important in the area of the evaluation increasing capacity of the candidate emember and its macroeconomic stability. During the accession negotiations with the EU; these new member countries experienced the growth rates which are demonstrated above.

The most significant feature of the table is about the stable rates of the new members' growth rates. None of these countries did not recorded huge differences during these six years as Turkey did.

Another important issue in this subject is the average of the rates. Turkey's average was recorded as %3.0 which is higher than only two of the countrie, Cezech Republic and Malta. Other eight countries were more successful than Turkey.

The last year before accession of the new 10s was 2003 and it is worth to add special comparisons about Turkey's relative income position in per capita GDP with these countries between 1998-2003.

TABLE 8……………

PPP of Turkey in 2003, is close with the other two candidates which have not fulfilled the acquis of the Union, Romania and Bulgaria. However, EU-15 and new EU-10 had strong performance. EU-15's average PPP was almost four times of Turkey's average and new EU's average was almost two times of Turkey's average.

Important point here is about the accession time. These numbers are only one year before the accession of the CEEC's, however, there is at least, with an optimistic estimation, ten years ot the accession of Turkey to the European Union. In case of the continuation of the sustainable growth rates after 2002, this negative perspective may change in comparision with the EU-15 and new 10 members. Additionally, turkey's situation at the beginning of the accession negotiations is much better than the 10 new countries' postion at the beginning of their accession negotiations. 26 Kemal Dervis and Daniel Gros

Turkey should try to start a sustained period of convergence which helps minimizing the differences in terms of GDP with the EU to an acceptable degree. This degree expresses the political and economic prosperity for Turkey which does not disturb the EU-25. However, it is hard to determine a concrete level for this purpose. This optimistic view is not based on the last decade of Turkey which is quite problematic, however, it is enough interesting that in spite of huge macroeconomic instabilities and crisis Turkey recorded some positive rates. This statement gives significant hopes about the following years. 27 Daniel Gros

3.3. Employment- Unemployment.

There are several problems in labour market of Turkey. Moreover, unemployment is a serious problem of Turkish economy. They both obstruct stabilization of labour market. It is worth to focus on them separately.

After the recovery of the Turkish economy from the 2001 crisis, high unemployment rate problem is going on; nevertheless, in addition to this problem, employment structure of the economy is not satisfactory in comparison with the European Union's member countries.

Before focusing on the post- Helsinki period, it is useful and necessary to describe general specifications of the labour market with some comparisons.

There are several different specifications of Turkey's labour market from the markets of European Union's countries. The most significant feature is the high population of Turkey. Moreover, Turkey's population consists of young population with a great proportion. This issue may be evaluated as positive for Turkey for the participations to the labour markets of a serious educational period for this young population period. However, in the case, educational expenses are the problematic area. On the other hand, in Turkey, employment rate of the working age is lower the European Union countries. This rate is near 50% in turkey while it reaches to 60% in EU countries. Self-employment, part time and fixed term employment rates are high in Turkey, however, high self-employment and part time rates are stemming from agricultural sector. 28 Erol Taymaz

Human force and human potential is strongly interrelated to the employment structure of the country. Demographic structure of the Turkish economy is quite different from European Union countries' economies. Turkey's population is increasing and this ncreasing population is an important advantage to concrete employement power should be debated.

This figure reflects the potentially active working population of Turkey and that of 15 members of the European Union. Turkey's population is quite higher than the rates of the other countries. Increase in this ratio 1% ceteris paribus, indicates increase 1% in potential GDP. Shortly saying, this advantage is related to the capacity use of the employment of the country, This increase in Turkey was recorded as 1.5 % in Turkey and this means the increase of the 25-65 age group's increase in this period. These rates are around 0.5 % in the old European members and in the new members except Poland. 29 Kemal Dervis

However, additionally, it should not be forgotten that increase in active population causes economic opportunity with increase in employment. On the other hand, Turkey did not able to realize this opportunity. Following table demonstrates the low participation to the employment with the countries similar with Turkey's labour market. The ratio of total employment to total population is below from the other countries.

Table 9: Employment 15-64 age

Total employment/ total population has the lowest rate in Turkey in comparison with big economies of CEEC's.

Several reasons are effective in the low total employment rate of Turkey from those of Turkey from those of the comparator countries. These reasons are demographic structure of Turkey, lower participation rate and actual employment in the 15-64 age group. 30 Kemal Dervis

Another side of the employment-unemployment problem is related to education. Skill defiency is the main statement of this problem. 45% of the unemployed are from the group that graduated only from primary school in Turkey. Problems of education can be classified, roughly, as quality, relevance to the labour market, transformation into a knowledge economy and pre-school education. 31 Marco Airudo et

Another significant issue about employment is the evaluation of the labour productivity. Turley's performance decreases with the inefficiency of the agriculture sector. However, productivity in services, industry, and construction is high when compared with the new biggest member countries of European Union. ( Czech Republic, Hungary and Poland), and with the other two countries ( Bulgaria, Romania) 32. Kemal Dervis.

Following table explains the situation briefly.

Table 10 : sectoral gross value added

Turkey's agricultural employment rate is high; it almost reaches 34 % of the total employment. This rate is quite higher than those of the European Union countries. However, industrial employment is, roughly, close to 18% of the whole employment. Services sector represents the biggest part of the whole labour market.

(pg67)

Transformation from an agricultural economy to a services-oriented economy is improving and proceeding. 33 Commission of the European Communities. However, it has not reached to a satisfactory level. Following table indicates this situation.

Table 11: Employed People According to sectors

Contribution to the labour force represents importance especially in 25+ group and this rate is, roughly, 52% in Turkey. Rural contribution is quite higher than that of urban. In addition to this, great differences did not recorded between 2000-2004. Agricultural employment is effective in this sepration.

Table 12: Contribution to the labour force.

Unemployment rate was recorded as 7.6% in 1999. Because of the economic slowdown in 1998 and 1999, unemployment rate, in 1999, increased with a serious proportion. Even to a level that; after 1994 financial crisis, it reached to the highest level. Earthquake affected also labour market in 1999 negatovely.

Table 13: Unemployment Rates

Between 2000 and 2004, unemployment rates started to increase. After the 2001 February crisis, it reached to 8.5%, however, subsequent years this ratio increased over 10%s. While other macroeconomic indicators were recovered unemployment rates continued to be most striking problem of the Turkish economy. 2001 crisis deteriorated urban unemployment more than that of rural. In fact before this severe crisis, rural employment was lower than the other, however, after the crisis difference sharply increased.

Unemployment rates continued to increase during 2000-2001 period when a great recession was experienced especially among under the age of 25 and in the services and industrial sectors.34 Sarah Forbey. In 2001, different economic problems were experienced in labour markets. February 2001 crisis is the main reason of these problems and employment market had been affected by these problems and difficulties and this market was not an exception of this process.

Because of the crisis, there had been experienced a significant increase in 2001 and unemployment rate increased to 8,5%.35 Commision of the European Communities. Moreover, it is known that rural population immigrate to the urban areas and this factor caused to an increase in labour force. This immigration process caused significant pressures on unemployment when they come together with the February 2001 crisis. 36 Tusiad.

After the 2001 crisis, one of the most interesting points in the labour market of Turkey was about the unexpected relation between growth rates and employment rates, Although, Turkish economy reached and recorded high growth rates in comparison with its past, however, did not able to record a related increase in employment performance as a conclusion of these high growth rates. This problem is seen in many developing countries and is called jobless-growth in literature. This problem, insufficient employment generation despite high growth rates appeared in Turkey, especially in 2002. In many quarters employment growth was recorded negative. 37 Turkey in 2005 an beyond. Following figure discloses these statements:

Its effects were observed as real income deterioration in real sector and in households. With adaption of capacity use rate to the market conditions serious pressures appeared on employment.

It is to say that, with the preventive precautions that were implemented, increasing employment rate had been accomplished, however, population increase and the people who lost their occupations caused to the increase of the unemployment rate. However, these positive improvements did not become appear in numbers. Unemployment rate was recorded as 10.3 in 2002 while it was 8.3 in 2001. Recovery of crisis was not fulfilled and this process was going on.

Moreover, urban employment became more evident. Among the total unemployment, educated young unemployment rate was fluctuating around 30%. It was interesting that a positive growth rate was accompanied with a decline in employment. This may be explained by the deterioration of the reflection of the growth, especially in agricultural sector, industrial and service sector. 38 Tusiad.

In conclusion, key factors for the solution of high unemployment problem are strong and sustained growth with structural reforms. These factors help to the absorption of the increasing population of Turkey. 39 Organization ..

Unemployment problem was recorded in new 10 members during their accession period. Unemployment rates of the new members do not reflect a stable position. Slovakia, Poland, Lithuania, Latvia recorded higher rates than those of Turkey. Turkey's unemployment rates are the most problematic area of the Turkish economy; however, Turkey's records are better than the new members records. On the other hand, in real terms number of unemployed person Is higher in Turkey than the other 10-new members because of the population of Turkey . Poland follows Turkey in number of unemployed person because Poland represents almost the half of the new members' population.

Labour force participation is higher than that of Turkey's in all the new 10 members. Turkey's average between 1999-2004 is 47%; however, the lowest rate among these countries belongs to Poland whose labour market is the most deteriorated market. This deterioration appears from the unemployment rates of Poland. Big economies, such as Hungary, Poland have lower rates than the others, however, rate of Czech rep. is higher than the other big economies.

Table 14: Unemployment Rates….

3.4. Public Finance

Fiscal balance is an important issue in the way of Turkey to the European Union. It is both important for pre-accession period. Stabilising the fiscal policy is one of the conditions required for the fulfilment of the Copenhagen criterion. Moreover, convergence to the European Monetary Union is closely related to Maastricht criteria and one of these criteria is concerned with fiscal balance.

Another significant point is about the role and effects of strong public finance and budget deficit. During the accession negotiations and the following period Turkish economy ensure its economic stabilization. This process proves the strength of the economy and indicates the convergence of the economy.

However, because of Turkey's public debt and interest rates Turkish economy is easily affected from both internal and external shocks. There are four areas for the continuation of sustainable growth rates and for stabilization suitable policies for adaption the way on accession to EU and to the EMU convergence.

= Fiscal policy should continue for satisfactory primary surpluses

= Fiscal policy should be ‘growth friendly'.

= Structural reforms should be harmonious with fiscal effort.

= Social policies should be amicable with equality which are harmful for social cohesion. 40 Marco

Managing debts was the main aim of the governments in budget preparations since 2000. At this point, the most important point is reducing the proportion of public debts to national income. Key issue of this process is to try to producing primary surpluses. 41 On economic and social life in Turkey

Figure 5: Public Sector primary Balance

Current IMF programme gives special importance to the fiscal restraint. Primary surplus target is evaluated as necessary by the fiscal authorities to reduce the debt burden of the economy. This reduction is also supportable for the fragilities caused by the high debt burden both on real and financial markets. 42 Turkey in 2005

However, continuation of 6.5% primary surplus for 3 or 4 years is a quite difficult process. Main point in this issue is a gradual and careful reduction of the surplus in favour of highly growth-promoting measures. By doing this, debt measures and dynamics do not deteriorate. 43 Marco Airaudo

Between 1999 and 2001, fiscal policy had not managed successfully. Frequently changing governments, earthquake in 1999, and the banking crisis caused to serious deteriorations in fiscal balances. 44Commisision of the European

The worst deterioration was recorded in 2001 in government budget deficit. Following the crisis, government took ownership of 4 private banks. By this operation number of banks under government control increased to 13. To govern both these new banks and also public banks extra bonds were issued. 13% of GDP was the amount for new 4 banks and 8% of GDP was the amount for public banks. These additional expenditures increased public debt stock to 61% of GDP. 45 Azim Ozdemir

As a summary, causes of booming public debts, in this period, can be stressed as weak fiscal performance, high real interest rates and weak banking sector and duty losses. 46 Nur Keyder

Interest expenditures were deteriorating significant part of revenues. In 2000, 88.1% of the tax revenues were separated for interest payments. The same proportion was 109% in the crisis year 2001. 47 Turkey in 2005 and beyond..

In 2001, interest expenditures were more than the tax revenues. Huge difference between the target and realization indicates the deterioration of the expenditure side of the fiscal policy.

In fact, increasing interest payments on debt burden started to be a serious problem since 1990s, however, governments did not try to solve this problem with all its sides. These events deteriorated the public policy of the whole economy.

In 2002 the fiscal stance was loosened because of the election at the of the year. Regulatory measures were started to be taken since spring and summer 2003. In general sense, fiscal discipline was one of the main pillars of the post-crisis economic reform programme. This programme had also a key argument for the decline of inflationary pressures. It was also stressing to the financial markets the continuation of the reform process. 48 Commission of the European Communities. In 2004, a strong recovery continued in fiscal balance and this satisfactory result reflected to general budget balance.

General government balance of Turkey and that of 10 new members is as follows:

Table 15: general government balance of CEECs

New members rates are quite lower than those of Turkey. Estonia, Latvia, Lithunia, Slovenia and Poland performed best rates. However, Slovakia, Czech Republic, and Malta's rates were higher than the other new members. On the other hand, Turkey's performance was the worst. In 2001, deficit of Turkish economy reached to -29.8% of GDP. However, after this year, this deficit started to decrease and in 2004 it decreased to -3.9%.

On the other hand, general government balance is one of the criteria of Maastricht. According to related Maastricht criterion, the ratio of annual government deficit to gross domestic product (GDP) should not exceed 3% at the end of the preceding year. If the country could not reach to this aim, the excess should have declined substantially. This should continue up to a point which was aimed or to a point close to the aim. Another point that must be careful about is this situation should be an exceptional situation. 49 Firat Bayar..

According to this criterion, most of the 10 CEECs, fulfilled it before their accession to the European Union. However, Turkey's performance between 1999 and 2003 was quite worse than the criterion. In 2004, general budget balance was recorded as -3.9 of GDP and Turkey's rate came close to the related Maastricht criterion.

3.5. Government Foreign Debt

While analyzing foreign debt of Turkish economy, one should be careful about several aspects. Sources of foreign debt of Turkish economy are not obvious. According to IMF, foreign debt was 100 billion dollar. However, there was not recorded a deficit of current account reached to this amount. Recorded current account deficit of the last 40 years was almost 40 billion dollar. The difference is stemming from capital outflow. 50 kemal Dervis

At this point, relations with European Union become more important. Accession to the European Union and even the start of full membership negotiations construct confidence for the weak and vulnerable financial markets of Turkey. Effects of the start of negotiations were positive and this improvement indicated that capital outflow of FDI ( foreign direct investment) can be prevented in a big proportion even capital inflow is expected.

Capital outflow is not recorded for the new 10 members of the European Union. Foreign debt did not increase as estimated and calculated from current account deficit. 51 IBID . That is to say, they are successful in attracting capital inflows; however, Turkey's performance is not satisfactory in this issue yet.

The level and growth rat of debt deterioration became one of the primary causes of macroeconomic vulnerability in Turkey following 2001 crisis. This statement increases the importance of this section. 52 OECD

It is useful to identify the concept of ‘foreign debt'. External debt is the debt to non-residents of the country and repayable in terms of foreign currency, goods or services. It contains several parts. Public, publicly guaranteed, private non-guaranteed long-term debt, use of IMF credit and short-term debt are the sum of the total external debt. 53 Economic indicators

According to the article 104-c of the maastricht agreement, Turkey has a crisis status in foreign debt in its current status. 54 Haluk Tandircioglu

Governments owe to improve economic conditions of the country. Because of this reason, government debts are classified as a kind of investment. However, government debt has similar specifications with the other types of borrowing while it contains many differences. 55 Ertuc Alioglu

In case of Turkey, total government debt was not conducted successfully, especially, during 1990s.

Macroeconomic, an unsuccessful debt management causes some serious problems in some macroeconomic indicators. In addition to this, debt burden affects developing country economies much more than it expected. Private investments, public investments are affected negatively and growth rates become slower. 56 IBID. These statements reflect and summarize debt burden of Turkish economy.

During 1999-2004 period, general tendency of the foreign debts was increasing. However; year 2001 was again an exception for our analysis. After 2001, the foreign debt, in terms of euro, decreased.

Earthquakes and banking crisis had significant effects on the increase of Turkish economy's debts. In such a manner that, in 1999, they caused to the launch of rates to 67% of that year's GDP. It reached to the maximum point, 105% in 2001. After the recovery period, in 2003 foreign debt rate decreased to 87%. However, still high shares of debt were in form of foreign currency and were in base of short-term interest rates. Decline in foreign debt is partly explained by substantial primary surplus but it was also caused by a strong nominal GDP growth. During 2003 and 2004, debt structure started to change and became more shoch-resilient by modifying it towards longer maturities. 57 Commission

Table 16

In 2000, general government debt rate declined to 58% of GDP. The reasons of the decline may be stated as the result of strong growth and the sharp decline in the interest rates. 58 Commision

As its known, 2001, February crisis caused to come to a halt the Turkish economy with different sides and sections. Foreign debt section is not an exception of this issue. During this period, both the rate of the general foreign debts to GDP increased and also foreign debt in real terms increased.

According to the EU accounting standards, the general government gross debt reached to 105.2% of GDP in 2001. The main reason of this increase was the result of the cost of the financial crisis. 59 Commission

February crisis restricted the external financing sources. Moreover, public sector drew the sources from the domestic markets. Therefore, private sector focused to the short term debts. With the effects of the crisis, private sector which experienced source problems became the playing actor of net debts. 60 Turkiye economisi

Another issue is convergence to the Maastricht criterion. One of the conditions of the Maastricht criteria is related to government debt. According to this criterion, ratio of gross government must not exceed 60% of GDP at the end of the preceding year. If this aim is not reached, this ratio must have diminished sufficiently and must be approaching to the aimed value, 60%.

Table 17: Foreign Debt

During 6 years, from 1999 to 2004, Turkish economy recorded only in 2000, a lower degree of 60% of its GDP. Other years were recorded as significantly high foreign debt ratios. However, after the climax in 2001 with 105.2%, this rate commenced to decrease, but it has not reached to the satisfactory level yet.

During the negotiation period of the new 10 member, these countries were harmonized with this convergence criterion. Especially, Estonia recorded the most successful results together with Latvia. Cyprus, Malta and Hungary had high foreign debt ratios in comparison with the other countries. However, highest rates and highest average were those of Turkey. In 2004, only small economies, Malta and Cyprus, were lower than 60% rate.

3.6. Trade Relations

While focusing on the trade between Turkey and European Union, the first key factor is the establishment of the customs union. This issue has both a historical background from the relation of Turkey and EU, and also it has economic impacts in trade after its establishment.

Commitment of the establishment of customs union was declared in the Association agreement however, 1970 protocol was focusing on the timetable for removing barriers on trade. This protocol was also containing of the timetable of Turkey for adapting to EC's common custom tariff on its trade relation with the third countries. EC abolished all tariff restriction in Turkish industrial goods over 12 years and for the other industrial goods timetable was 22 years. 61 Complementation…

These explanations reveal the historical background of the start of the customs union and trade integration of Turkey and the Union.

Turkey's significant economic trade partner is the European Union. Both half of exports and imports of Turkey are related to the European Union. During 1990s and the following years, 50% rate was almost kept. Following table confirms this explanation :

Table 18: Turkey's Export and Import shares.

Another interesting point was the stable position of volume of imports and exports before and after the completion of the customs union. There were not recorded significant differences in both areas, because EU had already opened its markets for Turkish exports before the conclusion of the customs union agreement. 62 sinan ulgen

During 1990s volume of world trade grew sharply. Form 1980s to 1990s reel world trade grew 4.1%, while it grew 6.9% in 1990s. Significant developments in the technologies of information caused positive effects on economy and trade volume of the whole world. These factors came together with the developments of abolishment of the trade barriers. These all caused to significant increases in the world trade. 63. dis ticaret

Turkey signed customs agreement with European Union in 1995 and this agreement became into force.

Bilateral market access, progress harmonization of regulatory structures and establishing an institutional framework for cooperation was commenced with the agreement of customs union. Moreover, customs union can be evaluated as the first step of Turkey to the integration of the European Union Single Market. 64 Sinan Ulgen

Both total export and import increased from 1999 to 2004 in total. Moreover, Import volume and export volume with European Union both recorded significant improvements. Import volume is quite higher than that of export. Import volume decreased only is crisis period in 2001. However, after this period it started to increase to significant levels.

Exports to EU recorded continuous improvement and reached to 63,121 billion dollar at the end of 2004. However, import of Turkey from EU reached to 97,549 billion dollar at the end of 2004.

Following table indicates general trade position of Turkey with different economic groups between 1999 and 2004.

Table 19: Turkey's Export and Import

Trade relations determine the integration of the two sides. However, Turkey's export and import ratios are lower than those of the new 10 members and also those of two candidates, Romania and Bulgaria..

Table 20:: eu shar

Export rate of Turkey to EU-15 is around 50% of whole exports. However, big economies of the new 10 members

3.7 Inflation….

Inflation was the most significant economic problem of Turkish economy especially for several decades. Many governments tried to take it under control or tried to reduce it. However, even though it was focused by many authorities, its effects continued until a long period with a severe form.

Even though inflation phenomena continued quite long time, it did not caused only economical problems moreover, psychological problems which were difficult to cope with appeared because of inflation problem.

High inflation rates that have continued for long time caused economic instabilities by inconsistent growth rates and unequal income distributions. 65 Tusiad

Membership to European Union requires establishing a more stable and more powerful economy for a successful integration period. After the candidacy of Turkey to European Union, economic stability acquired more importance because of the required conditions for Copenhagen criteria. At this point price stability acquired much importance.

Moreover, for the period after full membership, inflation targets and lower inflation rates are the crucial criterion for the Maastricht convergence criteria. European Monetary Union requires inflation criteria.

During 1990s, short-term public spending caused to high inflation levels; it was so high that it reached to a peak of 105% in 1994 and afterwards it went on with a robust level, 80%. After that period by the precautions carried out, inflation burden commenced to diminish. IMF supported the 1999 disinflation program. This program caused to some initial success. 66 Commission..

Program initiated in December 1999 was a disinflation program. It aimed at decreasing inflation rate to a single digit in three years, by the end if 2002. A nominally pegged exchange rate system was relied on for this program. However, before the completion of targeted inflation November 2000 crisis deteriorated expectations. 67 Ahmet Ertugrul

One of the aims of 2000-2002 macroeconomic program was the decline of inflation. According to this program, CPI and WPI were respectively targeted as 20%and 25%. Although both rates decline, they could not reach to the targets. CPI was recorded as 32.7% and WPI was 39.1% at the end of the year. 68 Tusiad

12-month inflation reached to 33% in February 2001 before the crisis. However, after the February 2001 crisis and with the negative effects of the subsequent depreciation in 2001 rebuilt inflationary pressures. 69 Commission

In 2002, inflation started to decline with positive effects on the implemented program after the February crisis. Target was 35% for 2002 and the result was 29.8%. Requiered precautions were taken by the arrangements of fiscal and monetary policy. In addition to this, weak domestic demand was another cause in this decline. 70 Commission

In 2003, inflation was recorded, as it was in 2002, under the targeted rates. According to the values of 2003, WPI decline to 13.9% and CPI declined to 18.4%. These rates were the lowest rates of last 28 year.

In inflation evaluations, 2004 was the best performance year of Turkish economy between the years 1999-2004. At the end of this year, annual percentage change in Consumer Price Index was recorded as 9.32%. wholesale Price Index , according to the change over the previous ebd-year index, was calculated as 13.8%.

Moreover, it should be stressed that inflation's decline reached to a record degree whoch had not observed for many years. Inflation rates were getting closer to one digit rates. After stabilization of inflation, other economic faculties and indicators can be controlled and be used more efficiently.

High inflation rates that Turkey witnessed for several years caused to a non-confidence environment. This environment united with insufficient infrastructure of other economic indicators and sectors. Therefore, Turkish economy had become a vulnerable economy. However, period after 2002, this scheme started to change.

Disinflation target is the most successful side of the post-2001 crisis adjustment efforts. Consumer and producer prices are able to be controlled by 2004. 71 Turkey in 2005

Following figure indicates the decline journey of inflation rate, both consumer prices and producer prices which gives a short summary about the decline of inflation from 80% to one digit levels.

The most significant difference between Turkey and CEECs is recoreded in inflation area. CEECs economies did not have severe and fragile problems about inflation between 1999 and 2004.

However, in Turkey inflation was a serious problem in the same period. Nevertheless, in 2004 it converged to other economies' rates. Lithuania, Cyprus, Czech republic and Malta performed successful situation in this period. Hungary's and Slovakia's rates are higher than those of the other countries.

Table 22: Annual ////

According to Maastricht inflation criterion, the inflation rate of given member state should not exceed by more than 1.5% that of the three best-performing member states during the year preceding the examination of the situation on that member state.

Required inflation rate was, 3.1% in 2001, 2.6% in 2002, 2.7% in 2003 and 2.4% in 2004. 72 Ministry of finance.. According to these Latvia, Lithuania, Malta and Poland were relatively successful countries. Slovakia, Slovenia, Hungary have to do more, while Czech Republic, Estonia, Cyprus are closer to the required values in average.

On the other hand, although Turkey's inflation rates decline sharply, Turkey's rates are quite high from the required values. Turkey could nor converge to the required values in the years after 2001 to 2004.

3.8. Monetary Policy

Monetary and exchange rate policy was regulated according to disinflation. Reducing inflation was a significant objective of the original 1999 program. Lower inflation rate became success criterion of monetary policy. 73 International Monetary Fund

In 1999, a crawling peg exchange rate regime started to be implemented as a nominal archor. Monetary policy was regulated according to this preferred exchange rate regime. However, in November 2000, deteriorated market confidence caused to serious capital outflows. By the effects of this outflow Turkish financial market experienced a liquidity problem. In February 2001 government changed the exchange rate regime to freely floating exchange rate. 74. Commision

However, results of this exchange caused to worse deteriorations. A strong depreciation followed this exchange rate regime change.

2002 and 2003 were the years that better results accompanied monetary targets. Base money targets were met in these years. Inflation declined, debt rollover concerns decreased and real interest rates recorded dramatic declines. Moreover, success in disinflation reduced exchange rate pass- through. 75 International Monetary

However, 2003 Iraq war affected success of monetary policy at the beginnings, exchange rate found its peak at the end of March 2003. During this period Turkish Lira depreciated 21% agaist Euro. 76 Commission of The European

Despite successful results on inflation, monetary policy daces some challenges in medium term. In medium term, Turkey should put in place a more transparent monetary framework. 77 International monetary fund

3.9 Final Assessment

As a conclusion of the third chapter of this study, European Union accepted Turkey as a functioning market economy as long as Turkey maintains its recent stabilisation and reform achievements. If Turkey continues its stabilisation policy and takes further decisive steps towards structural reforms, it should be able to cope with competitive pressures and markets forces within the Union in the medium term.

CONCLUSION

Turkish economic performance is a crucial and critical issue on accession way to the European Union. The importance of this issue is stemming from the determinant power of the economic stabilization in the European Union.

Economic stabilization is the most critical issue in this context and it has diverse sides. In this study, economic stabilization is closely related to effective economy which does not experience critical problems within the European Union markets and with the member states.

Growth performance of Turkish economy reflected significant improvement after the candidacy. However, the main advantage of Turkey is its young population in case of getting sufficient benefits which is named as potential growth performance.

On the other hand, Turkey started to perform high and positive growth rates after 2001 February crisis which reflect the signals of reaching some European Countries and new members. Growth performance is one of the most successful areas of Turkish economy between 1999 and 2004, especially in comparison with 1990s.

Public balance keeps its importance in the governance of the economy. Significant deteriorations were recorded in public balance and reaching to primary surplus targets formed important pillar of the economic program of 2002-2004. However, interest expenditures constituted the most problematic area of the public balance.

These expenditures deteriorated the budget deficit in the crisis period and interest payment over tax revenues rate is quite high. After the crisis period, significant recovery is recorded in general government balance. In 2004, Turkey's deficit, -3.9% is close to other new members' rates.

Foreign debt of Turkish economy reached to 105.2% of GDP in 2001 crisis period. Even though it declined in following years, foreign debt ratio of Turkey is not satisfactory. At the end of 2004, it declined to 80.1% of GDP. However, this high rate of foreign debt menaces stabilization of the economy. Problems in debt sustainability in public finance and in foreign debt can cause to severe crisis which is not a strange issue for Turkish economy.

On the other hand, there is a significant distance between Turkey and new 10 new members in foreign debt rates.

In labour markets of Turkey agricultural sectors have higher rate than those of European Union countries. However, transforming form an agricultural economy to a service-oriented economy is proceeding.

Unemployment is a continuous problem in Turkish economy while many significant successes are recorded in other areas. Therefore, this problem is expected to be the most focused area in the following years. European Union evaluates this high unemployment rate as a menace to their labour markets.

Inflation was the most deteriorated macroeconomic indicator of the Turkish economy during 1990s. Special precautions were taken to eliminate deterioration of inflation in the implemented economic programs.

In 1999, inflation rate was recorded around 60%; however, in 2004 it decreased to one digit level which can be named as a great success of the stabilized economy. Several arguments caused to this success. Regulated and stabilized economic environment were the foremost causes.

Trade relations with the European Union countries have a long history which is strengthened with the establishment of the customs union. In fact, increase of exports and imports id the most crucial point in integration process. It is obvious that strong trade relations with the whole of Union or with a single country are power both in economic and political mechanisms.

Turkey should strengthen its trade relations in order to participate more effective decision during accession negotiations period which is estimated at least ten years. Strengthening and increasing of exports is one of the most effective ways to accelerate this long and difficult period.

On the other hand, Turkey has already improved trade relations with European Union before its accession more than the other candidate countries and new 10 members on account of the customs Union. Improvement of the Customs union since 1995 is going to help in negotiations of the acquis which was quite difficult for the new members to converge.

Last enlargement welcomed 10 new members for several reasons. European Union wanted to control some old communist countries and want to benefit from these countries as fresh markets. Labour force of some of these countries is an opportunity for the Union. On the other side, these countries are smooth markets for the export goods of the Union.

In case of Turkey, situation is more complex. Turkey's population is definitely high for the European Union to welcome easily. Moreover, Turkey's education rate is lower than those of European countries and those of new members. This makes integration difficult. The biggest problem is the unstable economy of Turkey. Turkish economy is quite vulnerable and easily affected from external shocks or crisis. This is slowing stabilization targets down easily.

However, as the third chapter of this study explained, this problematic structure is changing with confident steps towards stabilization and high growth rates united with lower inflation rates and strict monetary and fiscal policy.

Henceforth, Turkey should continue its way accession negotiations and improve its power on the economic Copenhagen criteria which is close to fulfil by reaching a functioning market economy.

Additionally, Turkish economy should be prepared convergence to the economic criteria of European Monetary Union ( Maastricht criteria) in order to integrate to the economic union of the European Union after its membership. Final decision is going to be determined by a political-economic cooperation.