Top London banker warns that Northern Cyprus’ shift to the EURO could jeopardise Turkey’s economic programme and decrease the value of the New Turkish Lira.

At a conference at the European Bank for Reconstruction and Development in Bishopsgate, London on Friday, 23 June 2006, Durmus Yılmaz, the newly appointed Governor of the Central Bank of Turkey (TCMB) presented a conference on “General Economic Outlook” on Turkey. In his first meeting with the international financial community, Governor Yılmaz attempted to provide an explanation of the recent loses of the New Turkish Lira.

Playing down fears of a new slump in the Turkish Lira, the Governor blamed external factors in the loss of 20% of the value of the Lira in recent months. He also blamed climate as a factor in the recent 31% increase in fruit prices, but anticipated that the Lira, which is being closely monitored, would give way to disinflation by the middle of next year. He reminded bankers that there has been an increase in he credibility of the Turkish Lira in the past five years and that there were no signs of people rushing to buy hard currency.

Governor Yılmaz attempted to reduce fears by stating that investor confidence in Turkey has risen over the years, whereas in 2002 Turkey was 29th place, it is now 13th place in the world. He said Turkey is making progress but still has some way to go. Asked what his reaction would be to the possible switch-over from the Turkish Lira to the Euro in Northern Cyprus, Governor Yılmaz told Toplum Postası: “Northern Cyprus has been using the Turkish Lira for a long time, they are an independent state, it is really up to them, but I hope Northern Cyprus keeps the New Turkish Lira.”

However, a top Turkish banker who wished to remain anonymous told Toplum Postası: “ If Northern Cyprus switch over to the Euro, it would be very bad for Turkey’s Economic Programme, they [Northern Cyprus] would have lots of Turkish Lira that they could then sell off thus reducing the exchange value of the currency.”

Turkish Cypriot President Mehmet Ali Talat recently argued that a switch over to the Euro will bring greater price stability to Northern Cyprus but the issue has not moved forward due to fears of upsetting Ankara. It remains to be seen if President Talat would push the issue to a conclusion after Sunday’s elections.

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