World Economic ForumNovember 2006

Europe@RiskA Report by the Global Risk Network

COMMITTED TO IMPROVING THE STATE

OF THE WORLD

This work was prepared by the Global Risk Network of the World Economic Forum.

World Economic Forum91-93 route de la CapiteCH-1223 Cologny/GenevaSwitzerlandTel.: +41 (0)22 869 1212Fax: +41 (0)22 786 2744E-mail: charles.emmerson@weforum.orgwww.weforum.org

© 2006 World Economic ForumAll rights reserved.No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by anyinformation storage and retrieval system.

REF: 161106

Introduction 4

Managing Global Risk: The Global Risk Network 6

Turkey: Risk or Risk Mitigator? 7

European Perceptions of Risk 8

Perception of Turkey as a Source of Risk 9

Three Possible Risk Mitigation Roles for Turkey 11

I. Global Risk: “Oil Price Shock/Energy Interruptions” 11

II. Global Risk: “Coming Fiscal Crises Caused by Demographic Shift” 12

III. Global Risk: “Interstate and Civil War” 12

Europe@Risk Matrix 13

Europe’s Dilemma: Values vs Interests and Protectionism vs Leadership 18

Risk Mitigation: Conditions and Prospects for Turkey’s Potential Role 21

Turkey’s Role in Mitigating Europe’s Social Risks 23

From Risk to Opportunity: How Multilateralization Has Changed Greek Attitudes to Turkey 25

Dealing with Risk: If Turkey and Europe Break Up… 27

Footnotes 29

List of Participants 31

Contents

3

The relationship between Europe and Turkey isdriven by three factors: historical experience andmemory, perceptions of immediate interests andassessment of long-term strategic options. Thesethree elements are in constant interplay, permanentlyrebalancing each other, giving the relationship withEurope and Turkey both its complexity and vitality.

First, in the space of historical experience andmemory stand a number of issues which form thehistorical and psychological backdrop for therelationship between Europe and Turkey: historicalconceptions of “Europe”, the nature of the break-upof the Ottoman Empire and the common experienceof an alliance spanning decades against the Sovietbloc under the auspices of NATO. Turkey andEuropean states are products of history; commonepisodes of that history are key shapers of thecurrent relationship.

Second, of immediate interest are the questions thatwill drive the relationship over the next 12 months:How can Turkey maintain its path to accession tothe European Union? How should Turkey respond todifferent political conditions in major member states?How can the European Union manage itscommitments?

Finally, relevant to long-term strategy are the crucialissues of the next decades: How can Europe andTurkey deal with the global risks that face themboth, from the proliferation of weapons of massdestruction (WMD) and climate change, to thecoming fiscal crises caused by demographic shift,fears around energy security and possibleretrenchment from globalization?

This report focuses firmly on the last of these threespaces: the long-term perspective offered by anunderstanding of global risks to Europe, andTurkey’s possible role in mitigating them. Turkey isoften perceived as a source of risk to Europe; thisreport suggests that Turkey may, in fact, be able toplay a proactive role in helping Europe mitigate some(but not all) of the global risks to its prosperity andsecurity over the next 10 to 20 years. Overcomingthe perception of risk associated with Turkey may bea key aim for Turkish and European leaders.

Whatever the short-term outcome of currentnegotiations on accession to the European Union,Europe and Turkey are bound to each other in thewider global context. They have overwhelmingstrategic interests in maintaining mutual security andprosperity.

In this context, a key question for the future of therelationship between Europe and Turkey is howmuch long-term strategy will trump both immediateinterests and historical experience – or, conversely,to what extent perceptions of immediate interestsand historical experience will present obstacles tothe creation of a stable, secure and prosperousrelationship in which global risks can be dealt withcollectively.

The intention of this report is to promote freshthinking about Europe’s relationship with Turkey,allowing a space for strategic dialogue which recaststhe relationship in terms of long-term global risks –as opposed to historical experience or the short-term management of events. The purpose is not tointervene in current debates, but to provide aframework for discussion and, hopefully, a platformfor forward-looking action with mutual benefits.

This report seeks to help decision-makers formanswers to three main questions: • What are the major global risks facing Europe?• How might these global risks play out over a 10-

20 year period?• What, if anything, is Turkey’s role in mitigating

these risks?

One major part of the picture can be found in theEurope@Risk matrix on pages 13-17, which appliesthe global risk framework to the relationshipbetween Europe and Turkey. This simple matrixsummarizes how a select number of defined globalrisks may impact Europe over the next 10-20 years– and suggests whether and how Turkey will play amitigating role.

A further part can be found in Turkey: Risk or RiskMitigator?, an introduction to the context of thisreport, an exploration of European perceptions ofrisk and, particularly, the perception of Turkey as asource of risk, and a brief overview of three areaswhere Turkey can present itself as a mitigator of

4

Introduction

three of the major global risks facing Europe – therisk of “oil price shock/energy interruptions”, the riskof “coming fiscal crises caused by demographicshift” and the risk of “interstate and civil war”.

Two workshops led to this report – the first was heldin Istanbul in July hosted by Sabanci University, andthe second held in Brussels in October, with thecooperation of the Centre for European Reform. Thenotes of these workshops give an overview of thediscussions, built around the key risk elements in therelationship between Europe and Turkey. They arenot a consensus view of participants, but anaccount of dialogue and debate, and are availableon the World Economic Forum’s website asbackground information.

The final part of this picture is in the contributions tothis report of Turkish and European experts (pages18-28), helping us explore the strategic issuesconfronting both Europe and Turkey over the comingyears. Their insights, more than anything else,demonstrate the salience of discussing therelationship between Europe and Turkey in thecontext of a wider picture of global risks. Theirconclusions suggest the opportunities ahead forTurkey and Europe to collectively mitigate globalrisks, the obstacles to this and the possibleconsequences should the relationship regress.

Dr Argüden argues that Europe is facing a strugglebetween values and interests, protectionism andleadership – and that only a path that puts valuesand leadership at the core of Europe will allow it toovercome the risks facing it. He suggests that theway in which Europe manages its relationship withTurkey will be a key indicator of which path is chosen.

In his contribution, Sinan Ülgen rejects the fatalismof a “clash of civilizations” with Europe at itsepicentre. Instead he shows how Turkey can play anactive role in helping mitigate Europe’s social risksand how its stock of social capital, necessary toconfront wider global risks, can be boosted.

Chrysostomos Sfatos explores the way in whichattitudes to Turkish strength and weakness havechanged in Greece over the last few years, andshows how the multilateralization of dialogue hasheralded a shift in Greek thinking about Turkey –from risk to opportunity.

Ahmet O. Evin provides an insightful overview ofTurkey's role in the geopolitical landscape. Heargues that Turkey has a major risk mitigation role toplay, and sets out some of the near-term obstaclesto Turkey fulfilling that role. Above all, he makes anappeal for what he suggests is an increasingly rarecommodity – leadership.

In a piece of dense analysis, Katinka Barysch andCharles Grant ask what would happen if Europe andTurkey disconnected in a more fundamental wayover the longer term. Understanding the way abreak-up might play out in the future may help usconceptualize the risk mitigation role Turkey plays inthe present, and avoid a sharpening disconnect.Barysch and Grant suggest that Turkey'sfundamental western orientation may not be at risk –but that a break-up would cause increaseduncertainty, greater instability and reduce Europe’sand Turkey's collective ability to face up to commonglobal risks.

Our thanks go to all those who have contributeddirectly or indirectly to the making of this report, toProfessor Ahmet Evin for hosting the first workshopin Istanbul in July, and to Katinka Barysch andCharles Grant of the Centre for European Reform fortheir assistance and advice in organizing the secondworkshop in Brussels in October. Our hope is thatthis report will provide a useful framework fordiscussions surrounding Europe’s and Turkey’srelationship and will draw out the salient long-termglobal risks that both will have to face in the comingyears.

5

Mustafa Kemal Ataturk, Founder of the Turkish Republic

This report builds on the global work undertaken bythe Global Risk Network (GRN) of the WorldEconomic Forum.1 The purpose of the Global RiskNetwork is to promote a better understanding ofglobal risks, and seek to facilitate mitigation. TheGRN was set up in 2004 in response to concernthat the international community and the globalbusiness community were not yet able to respondadequately to a radically changing global risklandscape.

The seven elements of the changing landscapeof global risks are:

• Interconnectedness: opportunities for contagionacross geographies and across categories makerisks harder to manage and their consequencesharder to predict.

• Asymmetry: partly as a result of contagion, riskscan have disproportionate effects.

• Time compression: some risks can developwithin the decision cycle of decision-makers;“just-in-time” processes can leave little built-inresilience.

• Risk extension: other risks develop in timeperiods outside the decision cycle of decision-makers, giving rise to the “NIMTOF” (Not-In-My-Term-Of-Office) phenomenon where mitigationcosts are immediate and known, and the benefitsare either long term or not fully clear.

• Need for multistakeholder response: differentappreciations of individual and group interestmake global risks difficult to mitigate; theytypically require multistakeholder responses.

• Noise: salient facts are not noticed at the time. • Rise of “infodemics”: rapid spread of inaccurate

information can skew responses, generatinginformation-driven impacts greater than those ofthe primary risk event itself.

Through a number of activities in conjunction with itspartners, over the last two years the Global RiskNetwork has engaged a wide range of experts in theeconomic, geopolitical, environmental, societal,scientific and technological fields in exploring thenature of the risk landscape facing governments,societies and businesses. The Global Risk Networkhas produced a number of outputs, including high-level overview reports published at the WorldEconomic Forum Annual Meeting in Davos.2

This report is the first to give a regional dimension tothis global work.

6

Managing Global Risk: The Global Risk Network

“Today, the relations between institutions andnations, in a constant state of change anduncertainty, have become extremely complex.In this regard, it has emerged that governorshave to implement a more careful andthorough style of governance. In addition tochange in social life, there have beenbewildering developments in means ofcommunication. Such an environmentnecessitates the identification andimplementation of an institutional “riskmanagement” mechanism which includes theprediction, evaluation and decrease orelimination of negative effects of riskscenarios that may be met in the future. Don’tforget that the healthiest way to predict thefuture is to create it.”

- General Yasar Büyükanıt, 2006-2007Academic Year Opening Ceremony of theTurkish Military Academy, 2 October 2006

The immediate context of this report is difficult.

The relationship between Europe and Turkey isunder strain. At the same time, the historically strongstrategic relationship with the United States hasbeen under pressure since Turkey declined to be aplatform for the invasion of Iraq. A number ofspecific incidents since then, such as the arrest ofTurkish special forces near Sulaymaniyah in northernIraq in July 20033 and ongoing concerns over therisk of US support for a highly decentralized Iraqwith a de facto independent Kurdish state, have nothelped. Within Turkish public opinion, support forboth the US and the EU has fallen. One much-citedarticle asks whether, in years to come, Westernstrategists will have to ask the question, “Who lostTurkey?”, in recognition of a previously unthinkablerisk of Turkey pursuing alternative geostrategicoptions now available to it.4

Long taken for granted as a pillar of geopolitical riskmitigation, Europe and others may need to reassessTurkey’s role as a risk or risk mitigator in the contextof a wider range of emerging global risks.

The chief immediate cause of strain as regardsEurope concerns Turkey’s accession process to theEU. Public support in the European Union forenlargement – and for enlargement to Turkey inparticular – has fallen dramatically since the“euphoria” of December 2004. Just 13% of Austrianrespondents, 27% of respondents in Germany, and39% in France, favour enlargement of the EuropeanUnion to Turkey.5 The intensity of public support forthe European Union has declined in Greece – from74% to 56% between Autumn 2005 and 2006 –ascribed by some to the accession of neighbouringBulgaria and Romania in 2007 and intensifyingdebates around Turkey’s candidacy.

More surprising is that the decline in public supportfor enlargement within the EU-25 has been reflectedin Turkey itself. Public support in Turkey for EUenlargement fell from 52% in Autumn 2005 to 45%in 2006. Over the same period, trust in the EuropeanUnion declined from 50% to 35% – just above thelevels of the United Kingdom.

But perhaps the most interesting disconnect ofpublic opinion in the EU-25 and in Turkey is over thequestion of who would benefit from eventual Turkishmembership in the European Union. In the EU-25,52% believe Turkish entry primarily benefits Turkey,whereas 20% believe the benefits are mostly mutualand 7% believe the benefits are primarily to theEuropean Union. In Turkey, the picture is almostcompletely reversed, with 34% believing Turkishaccession to be primarily in the interests of the EU,30% believing the benefits are mutual and only 13%believing that the primary benefit is to Turkey itself. Insum, the popular perception in the EU-25 is thatTurkey’s accession would be of benefit to Turkey;the popular mood in Turkey is that accession wouldbenefit the EU.

Overcoming this disconnect – a difference in riskperception – may be a key goal for European andTurkish political leaders over the next months andyears. It is not necessarily new; a senior Commissionofficial speaking at the Brussels workshopsuggested that, in 2004, the argument was notsufficiently well made that enlargement is in Europe’sinterest and that net gains were to be expected. Butthis disconnect is of fundamental importance – it isthe difference between Turkey being seen as asource of risk for Europe, or as a risk mitigator forEurope. Exploring the ways in which Turkey is, orcan become, a mitigator of global risks for Europemay be a first step in understanding how thatdisconnect may be open to change.

7

Turkey: Risk or Risk Mitigator?

0%

10%

20%

30%

40%

50%

60%

EU-25 Turkey% of respondents

Interestsof Turkey

Mutual Interests

Interests of EU

Other

Disconnect between EU-25 and Turkish views ofwho would gain from Turkey’s eventual accession

There is a growing concern that Europe is becomingrisk-averse – and that risk aversion may makeEurope unable to capitalize on opportunitiespresented to it.

A number of Turkish participants in workshops inIstanbul and Brussels drew attention to an apparentlack of leadership in Europe, and difficulty inadapting itself to a more open and flexibleenvironment created by globalization. Oneparticipant said that “Europe has no motivation andnothing to sell.” Another suggested, simply, that“Europe does not ‘get’ globalization.”

At the level of those governing Europe, the argumentwas made that Europe’s increasing inability to see(or seize) opportunity in place of risk may speed itsdecline and prevent it from playing the positive rolein world affairs that remains open to it.

At the level of public opinion, most Europeans’assessments of their own individual exposure torisks include a combination of classic risks – such asthat of being injured in a car accident – to a numberof risks that connect to the global risk landscape.

Their assessment of the most important issuesfacing their country is similarly a mix of classic issues– crime, healthcare, taxation – and a number ofissues which, indirectly or directly, are connected toa wider external landscape of global risks –unemployment, economic situation, immigration,inflation and terrorism.

To the extent that Turkey can present itself as amitigator of risks to Europe, it will have to be able tobridge both the individual and strategic perceptionsof risks to Europe.

8

European Perceptions of Risk

European attitudes to risk - risks which EU-25 citizens believe most likely to impact on them personally

Not LikelyLikely Don’t Know

0% 50% 100%

Environmental pollution damaging

your health

Consumer goods (other than food)

damaging your health

Being injured ina car accident

The food you eat damaging your health

Being the victimof a crime

Being the victimof terrorism

A serious illness

20% 75% 5%

31% 63% 6%

42% 53% 5%

42% 55% 3%

49% 41% 10%

51% 42% 7%

61% 36% 3%

Source: Risk Issues, Eurobarometer, February 2006

EB-64 Autumn 2005EB-64 Spring 2005 EB-65 Spring 2006

0%

10%

20%

30%

40%

50%

60%

% of respondents

Unemployment Crime Economic situation

Healthcare system

Immigration Terrorism Pensions Taxation The educational system

Rising prices/ inflation

The two most important issues facing (our country) at the moment

Source: Eurobarometer 65, July 2006

The perception of Turkey as a source of risk isbased on a number of issues.

First, as one participant put it in the Octoberworkshop, Turkey is in a “difficult neighbourhood”.Turkey has land borders with Iraq, Iran and Syria.Continued violence in the south-east of the countryhas both sparked cross-border tensions with theKurdish authorities in northern Iraq and, in turn,caused tensions with the United States. In additionto these, Turkey has been subject to Islamistterrorism, suffering major bombings in Istanbul in2003. Turkey’s position on what some see as apotential cultural fault-line increases its perceived riskto Europe.

Second, Turkey has a large and growing population,with a relatively high rate of unemployment. The fearof large-scale immigration contributing to Europeanunemployment – the top issue of concern to EU-25citizens – may be misplaced, but it is real. As oneparticipant in the Brussels workshop pointed out,this is a major “fear factor” in European publicopinion. Meanwhile, economic growth in Turkeyneeds to remain consistently high to provideemployment to its workforce.

Third, policy and political instability in Turkey hasbeen a major risk consideration in the past and

continues to be one in the present. The followingtwo graphs, drawn from The Global CompetitivenessReport (GCR) 2003-2004 and 2006-2007,6 show amajor change in the make-up of respondents’ viewson problematic factors for doing business. Theperception of government instability and coups –along with inflation – has sharply declined, but animpression of policy instability remains.

Fourth, Transparency International’s Bribe PayersIndex (BPI) placed Turkey 27 out of 30. In theCorruption Perception Index (CPI) Turkey is 65 out of158, well down the table, though still above bothEuropean Union member Poland and candidatecountry Croatia, both tied at 70. The respondents tothe 2006-2007 GCR ranked Turkey at 70 for theimpact of organized crime, one position behindRomania; on the perception of the soundness of itsbanks, Turkey ranked 99 out of 125.

Fifth, Turkey is on a major seismic fault-line. Thatsaid, in the 2006-2007 GCR Turkey is rankedsurprisingly low – 51 out of 125 – in terms of theimpact of natural disasters on business operationsand decisions. This suggests that however real therisk, it is not a major factor in determiningcompanies’ decisions to expand local businessactivities. This could rapidly change in the wake of amajor earthquake.

9

Perception of Turkey as a Source of Risk

0 5 10 2015

Factor

Percent of responses

Inefficientbureaucracy

Policy instability

Tax regulations

Tax rates

Access to financing

Inadequateinfrastructure

Governmentinstability/coups

Corruption

Restrictive labourregulations

Inflation

Inadequatelyeducated workforce

Foreign currencyregulations

Poor work ethic

Crime and theft

The most problematic factors for doing business in Turkey: 2003-2004

0 5 10 15

Inefficient governmentbureaucracy

Policy instability

Tax regulations

Tax rates

Access to financing

Inadequate supplyof infrastructure

Governmentinstability/coups

Corruption

Restrictive labourregulations

Inflation

Inadequatelyeducated workforce

Foreign currencyregulations

Poor work ethic innational labour force

Crime and theft

Factor

Percent of responses

The most problematic factors for doing business in Turkey: 2006-2007

Finally, the Turkish economy has suffered long-termmacroeconomic instability. In the last 20 years,Turkish GDP growth has swung from over 8% in fourof those years, to less than -4% in three of thoseyears. Consumer price inflation was above 40% in15 of the last 20 years. Over the last 15 years,overnight interest rates have been extremely volatile,going beyond 50% on several occasions. Domesticgross national saving as a percentage of nationalincome has tended to be the same as countries withfar higher per capita income (such as the UnitedStates or current member states of the EuropeanUnion), while inward investment has beenconsiderably lower than in the transition economiesof Eastern and Central Europe.

Political instability and economic volatility have beenseen to be responsible for up to half of theproductivity shortfall in the Turkish economy,distorting business decisions, reducing the ability tomanage strategically and reducing the intensity ofcompetition.7

Much has changed in recent years, particularly sincethe 2001 financial crisis. The independence of thecentral bank has been a major advance – oneworkshop participant suggested that the real risk forthe future is either inaction on the part of the centralbank to combat inflation, or creeping undermining ofits independence. The 2002 election of a stableIslamist-led government has led to the continuationof orthodox fiscal policies. Much has also beenascribed to the “EU effect”, not only in the sense ofthe specific reforms which the EU accessionprocess has required, but in terms of the long-runstrategic aims which the path to accession entails.Exports have grown quickly, and interest rates havebeen rapidly converging with those of the transitioneconomies of Eastern and Central Europe. Net debtpeaked at over 90% of GDP in 2001 and is nowaround 55%.

The results are clear. Foreign Direct Investment (FDI)totalled US$ 9.8 billion ( 7.8 billion) in 2005; by mid-2006 Turkey was already close to passing thatfigure. FDI into the financial sector has beenparticularly pronounced. Productivity growth hasbeen high (though unbalanced between the informaland formal sectors); structures of financial regulationhave been largely updated (although, according to a

recent OECD report, there is a need for continuedfiscal discipline and transparency).8 The “riskpremium” attached to Turkey has declined markedly.The fourth graph on this page, showing Turkey'ssecondary market bond spread over US Treasuries,demonstrates clearly both the decline in volatility andthe convergence and the overall reduction in the“risk premium”.

The current account deficit remains high, with muchof the gap covered by short-term funds, leavingTurkey structurally vulnerable to external shocks andto the decisions of outside investors. The Turkisheconomy was significantly affected by the reducedrisk appetite of international financial markets in May2006. Turkey was not the only economy affected –the impacts were shared across a number ofemerging markets – and the lessons are mixed:

10

Figure 2.1. Positive macroeconomic fundamentals

1. Primary market treasury bill interest rate (compound) (weighted by net sales).

2. Turkey's secondary market bond spread over US Treasuries.

Source: JP Morgan, Central Bank of Turkey and OECD.

1999 2000 2001 2002 2003 2004 2005 2006-20

-10

0

10

20

%

-20

-10

0

10

20

%

A. Real GDP growth

1999 2000 2001 2002 2003 2004 2005 20060

20

40

60

80

%

0

20

40

60

80

%

B. Inflation

1999 2000 2001 2002 2003 2004 2005 20060

50

100

150

200

%

0

20

40

60

80

%

C. Interest rates

(right scale)

Treasury bills(1) (left scale)

Treasury bills(1) (right scale)

CBRT overnight lending rate

1999 2000 2001 2002 2003 2004 2005 20060

500

1000

1500

Basis points

0

500

1000

1500

Basis points

D. Eurobond spread(2)

Positive macroeconomic fundamentals

Source: OECD Economic Surveys: Turkey – © OECD 2006

Overall, a major challenge for Turkey is to presentitself as a risk mitigator to many of the global risksfacing Europe over the next decades. A major partof this is in the Europe@Risk matrix on pages 13-17.The aim here is to focus briefly on three of the mainareas where Turkey can present itself as a riskmitigator to the impacts of Europe’s exposure toglobal risks.

I. Global Risk: “Oil PriceShock/Energy Interruptions”

Europe’s sense of vulnerability to the risk ofinterruptions in the supply of energy, a spike inhydrocarbon prices or a prolonged period ofweakness vis-à-vis major energy suppliers hasincreased. This is partly a function of higher globalprices for hydrocarbons, fears over supply-chainweaknesses, increasing geopolitical competition forresources and growing debate over “peak oil”. It isalso partly due to local considerations – theincreasing dependence of Europe on hydrocarbonimports (expected to rise from 50% to 70% over thenext 20-30 years) and the Ukraine-Russia gasdispute in 2005-2006, which had knock-on effectsin the European market. The European Council hascalled for an Energy Policy for Europe to be adoptedin early 2007. While supporting global energymarkets is seen as key to energy security, Europehas also set aims to diversify supplies, help Turkeymake full use of its potential as an energy transporthub and create a “common regulatory area with

shared trade, transit and environmental rules”. Therehas been a renewed push to secure ratifications ofthe Energy Charter Transit Protocol, and promoteTurkey’s rapid integration into the Energy CommunityTreaty. At the same time, Turkey has expressedwillingness to become a “fourth artery of Europe’senergy supply security”.

Turkey can play a strong risk mitigation role over thelong term. The essential fungibility of oil makesEurope subject to global, rather than regional, oilmarkets. Nevertheless, the opening of the 1 millionbpd Baku-Tbilisi-Ceyhan (BTC) oil pipeline is ahistoric connection to the Caspian basin (essentiallyAzerbaijan and, from 2007, Kazakhstan), despitesecurity concerns surrounding the pipeline. Whenthe security situation is improved, Turkey may

11

continued vulnerability combined with improvedresilience. One representative of the financialservices industry at the Brussels workshopsuggested that “expectations were that this wouldbe bad – it wasn’t; the system is more resilient thatwe had thought.”

However, as another participant in the Brusselsworkshop asked – how do you sell a success story?The productive success of the Turkish economy maytend to increase fears in Europe over the risks ofdelocalization of employment. Moreover, “the betterthe economy performs, the more that Turks may feelthat we don’t need Europe.”

Three Possible Risk Mitigation Roles for Turkey

Construction of the BTC pipeline in 2004

become a key transit supplier of oil from Iraq. Thereare a number of Bosphorus bypass projects intendedto reduce the risks of shipping oil through the straits.

Turkey’s mitigation role as a transit country forCaspian basin and Iraqi oil may be outstripped by itsrole in ensuring the supply of gas – from Russia, theCaspian basin and, eventually, Iran and the Gulf. Inaddition to the Bluestream gas pipeline from Russia,there has been European agreement on theconstruction of the 3,000 kilometre Nabuccopipeline (due to open in 2011), with eventualconnections to Azerbaijan’s Shah Deniz field throughthe BTE pipeline. Turkey has further been discussingan energy deal with Iran – partly to renegotiatecurrent terms of supply, but also to possibly set up aframework for the export of Iranian gas throughTurkish pipelines to European markets. There arediscussions for a Bluestream-2 pipeline from Russia.A Turkish gas transit role cannot supplant Russiansupply, but it can complement it and provide leverage.

Much depends on investment in infrastructure,Turkey’s willingness to integrate into the Europeanenergy security architecture, Turkey’s own energydemands, and overall regional security – but Turkeyhas the potential to mitigate a major global risk toEurope.

II. Global Risk: “Coming Fiscal CrisesCaused by Demographic Shift”

The current demographic structure of Europe’spopulation entails an in-built shift in dependencyratios over the next decades. A recent report on thesustainability of European public finances confirmedthe overall scale of the problem, and dividedEuropean countries into high-risk (Greece andothers), medium-risk (France, Germany, Italy, Spain,the UK and others) and low-risk (including Denmarkand Austria).9 However, all countries will have toengage in major budgetary consolidation. A numberof European countries (such as Italy) are alreadyunder considerable fiscal strain. The fiscal problemmay be accentuated by an estimated financialwealth shortfall of 34% in the UK, 25% in Germanyand 39% in Italy – in terms of the difference betweena simple historical extrapolation and a projectionfrom 2003-2024.10

Increasing workforce participation rates, improvingfiscal balances and raising retirement ages may offersome mitigation of the risks. A further element tomitigation may include increased immigration. A finalelement to mitigation may be improved assetallocation to higher return assets.

Turkey has a relatively low retirement age, given itsdemographic profile. Labour force participation, ataround 49%, is lower than in some Europeancountries. While it has savings rates that arecomparable to European savings rates, expectedgrowth in population and its demographic structuremean that the consequences of this on its medium-term fiscal position is not as serious as in WesternEurope.

Closer ties between the economy of Turkey andEurope may allow Turkey to play a strong riskmitigating role – by creating a secure market forhigher return investments, an excellent base forEuropean business profitability, by contributingdynamism to the European economy and byproviding workers to supplement a decliningEuropean workforce.

However, there are a number of problematic issuessurrounding the last element of the mitigation role.One participant in the workshop in Istanbul askedtwo particularly acute questions: Do Turks have theright skills to take up jobs in Europe? and Howmuch of a workforce will Europe really need in 2020(the earliest possible year of accession to theEuropean Union’s single labour market)? A furtherissue may be in terms of Europe’s choice ofimmigration policies, with options ranging from“fortress Europe” to “managed immigration” and“phased immigration”.

III. Global Risk: “Interstate and Civil War”

Major interstate war is largely thought anachronisticas a result of international law, norms and trade.However, the small risks of large-scale interstateconflict over the long term need to be consideredprudentially. Turkey inhabits a region key to many ofthe possible small-scale and large-scale conflicts ofthe next century: the Middle East, Central Asia and

12

the Caucasus. Turkey can be a major securityprovider in a region vital to European (and globalsecurity), contribute credibility to European militaryforce-projection capabilities and, more widely, toEurope’s Common Foreign and Security Policy(CFSP) and European Security and Defence Policy(ESDP).

Part of this mitigation role results from Turkey’sgeographical position in Sir Halford Mackinder’s“Eurasian heartland” – bordering Iran, Syria, Iraq andthe south Caucasus, controlling the Bosphorus andthe upstream waters of the Tigris and Euphrates,and sharing an inland sea with Russia and theUkraine. One workshop participant suggested thatgeographic location has required Turkey to maintaina strategic military culture which many Europeancountries have lost.

Part of the role stems from European experience ofTurkey as a valued security partner for 50 yearsthrough NATO, historically as a key block to anysouthern strategy manoeuvre by the Soviet Union,more recently as contributor and force commanderin the International Security Assistance Force (ISAF).

A further part of this mitigation role results fromTurkey’s network of relationships across a widerregion on which European states depend but overwhich they have relatively little direct influence.Turkey has emerged as a possible intermediarybetween Europe and Iran. Turkey has maintainedgood relationships with both Israel and Syria.Though historically turned away from the Arabworld, it is playing an increasing diplomatic andmilitary role in the wider region – for example, as acontributor to peacekeeping in Lebanon.

This demonstrates not only that Turkey’s strategicoptions and horizons are increasing – but it points tothe influential role that Turkey can play in helpingEurope to ensure regional security. Much dependson reforms of the Turkish army itself – oneparticipant pointed to its low “usability rate” despitetwo commands of ISAF – the willingness of Europe tointegrate Turkey more fully into its security architectureand, crucially, Turkey’s willingness to opt for aEuropean security option rather than a regional one.Turkey will have to be encouraged to maintain andexpand its role of European regional security provider.

13

Europe@Risk Matrix

The following Europe@Risk matrix draws on themajor global risk issues identified by the Global RiskNetwork for 2006 and explores the trends to watch,impact on Europe and the potential mitigation rolefor Turkey. The 12 risk issues selected here are asubsection of a broader set of risks affecting theglobal risk landscape; the risks selected are thoseconsidered the most pertinent and interesting for thisreport, either because they have a particular impacton Europe or because Turkey can play a strongmitigation role. This are not intended to be a rankingof risks or a complete list. The full set of 23 riskissues will be discussed in the global context by theGlobal Risk Report 2007, to be released in Januaryof next year.

14

Oil price shock/energy supplyinterruptions

US current accountdeficit/fall in US$

China’s hard landing

Coming fiscal crises caused bydemographic shift

Blow-up in assetprices/excessiveindebtedness

Climate change

In the short term, a hydrocarbon price spike sparkedby geopolitical tension or terrorism - disruption tosecure energy supply.

In the longer term, a plateau of high hydrocarbonprices as the supply of products fails to keep up withdemand, particularly from emerging markets –unsustainability of secure energy supply.

Unsustainability of the US current account deficit,triggering a major fall in the US dollar, with impactsthroughout the financial system.

Sharp slow-down of China’s economy – potentiallyas a result of protectionism, internal political oreconomic difficulties.

A demographic shift in developed economies leadingto higher taxes, deterioration in the fiscal positionand long-term economic stagnation.

Collapse in house prices and other asset pricespushing consumers into negative equity and causingrecession.

Increasing frequency of extreme weather events fromman-made climate change, with severe impacts oncritical infrastructure, agricultural yields and humanlives.

Rapidly expanding demand, 80% driven by BRICs; fearsthat underinvestment in capacity will mean productionshortfall.

Increasing concentration of hydrocarbon resources drivinggeopolitical attempts to “lock in” future supplies.

Debate over possible “peak oil”; growing awareness ofandrogenic climate change.

Integrated energy systems improving market efficiency, butleaving them vulnerable to sudden supply contractionsfrom exogenous shocks (e.g. Hurricane Katrina).

Changing global picture of high US current account deficitsustained by Asian saving.

US dollar remaining the global reserve currency; othercurrencies (e.g. euro) playing an increased portfolio role however. See The US Current Account Deficit and Global Ramifications,Global Competitiveness Report 2006-2007

Debate around the long-term sustainability of China’scurrent growth given infrastructure constraints,environmental concerns and political risk.

Evidence of some backlash against Chinese exports (inthe form of anti-dumping duties); concerns about thestability of the Chinese financial system and the extent ofpotential defaults.

Attempt in a number of countries to boost participationrates and retirement ages.

Improved global asset allocation allowing developedeconomies to manage adverse demographic ratiosthrough higher returns on savings.

A correction in house prices eventually under way in US;questions over the particularities of the US market (highpersonal expenditure and indebtedness) compared toother markets.

Trend of increasing number of households possiblymitigating short-term declines by supporting long-termdemand.

Consensus around climate change moving to a debatearound impacts, possible mitigation or adaptationmeasures.

Impacts of climate change possibly causing populationmovements, tension within countries and betweencountries.

Risk Description Trends to watch

15

Europe is already a major importer of oil and gas; and a declining producer.Over one trillion euros will need to be invested over the next 20 years.

Over the next 20-30 years, the share of energy needs derived fromimported sources will rise from 50% to 70%, leaving Europe morevulnerable to external supply interruptions.

Europe’s geopolitical position may be undermined if it is unable to improvediversity of energy supply.

The energy-intensity of European GDP is falling; rising hydrocarbon priceshave not yet had adverse growth impacts – but a spike in globalhydrocarbon prices may ultimately feed inflation.

A major fall in the US dollar would have mixed impacts in Europe – reducingexport competitiveness while cutting the price of US imports.

The longer-term appreciation of euro denominated assets – sparked by aUS dollar fall – might increase the reserve currency role of the euro, andthereby enhance the European position in international financial system.

Europe is a major trade partner and investor in China. Should its economyface a sharp slow-down, European companies with major investments inChina would see declining profitability.

The US, Japan and China all face a demographic shift. Europe’s particularvulnerabilities are heightened by population structure, social securitycommitments and attitudes to large-scale immigration.

Some European economies (e.g. UK and Ireland) are considerably moreexposed to the downside of asset price collapse than others (e.g. Germany)through higher gearing, ownership rate and price-to-income ratio.

In the more exposed economies, asset price collapse would lead toconsumption decline; contagion effects across economies could cause recession.

Climate change is necessarily a global phenomenon. No region can escapeimpacts – either primary (e.g. increased frequency of extreme events) orsecondary (e.g. consequences of extreme weather events through vectorsof migration, disruption, etc.).

Europe’s primary exposure to climate change may be less than other worldregions; but much depends on system interactions which cannot be fullymodelled or predicted (such as possible changes in the Gulf Stream).

61% of EU-25 citizens say they believe it “likely” that environmental pollutionwill affect their health.

High: Turkey is already a major transit country for hydrocarbon resources;this role will become increasingly vital as Caspian basin productionincreases and as Gulf gas resources seek appropriate export routes.

Turkey could become a “fourth artery” for European energy supplies,improving diversity of supply, reducing Europe’s dependence on one ormore major suppliers (particularly in gas supplies) and therefore improvingEuropean leverage with other suppliers.

For Turkey to play this risk mitigation role, Turkey must be securelyanchored in European energy frameworks, infrastructure and transitagreements. See further explanation on page 11.

None: Turkey’s position in the global economy is not sufficient to impact themanagement of the US current account deficit or manage consequences ofits possible long-term unsustainability.

Limited: Turkey’s position in the global economy is not sufficient to replacethe impact of a severe slow-down in Chinese growth. However, over thelonger term, the Turkish consumer market might help mitigate the loss ofEuropean export markets, while the Turkish manufacturing potential mightoffer an alternative platform for exports to the Middle East and West/CentralAsia in particular.

Medium: Turkey has a young demographic profile. In addition to offeringpotential investment opportunities to support European retirees, Turkey mayoffer a major European workforce addition, contribute to Europeandynamism and act as a major provider of retirement services. See further explanation on page 12.

None: Turkey’s property prices have been increasing rapidly – opportunityand risk are matched at high levels. While the underlying trends (populationgrowth, urbanization) are positive, the market is highly cyclical. Turkey wouldnot mitigate a European blow-up in asset prices, but might itself suffer from it.

Medium: There are three levels to Turkey’s mitigation role:- Reducing GHG emissions (Turkey’s emissions are currently set to riserapidly, but there are large potential efficiency gains in transmission, etc., –per capita energy consumption has risen 25% over the last 15 years);- Supporting European policy on climate change in international arenas; - Assisting in dealing with the possible secondary impacts of climate change.

Impact on Europe Turkish mitigation role

16

continued

NatCat: Earthquakes

International terrorism

Proliferation of WMD

Interstate and civil wars

Retrenchment fromglobalization

Pandemic

Earthquakes in built-up areas or areas of vitaleconomic importance with the capacity to causelarge-scale human suffering and major economicdislocation.

Acts of terrorism (both internationally organized andinspired, and local) with the capacity to causeextensive physical damage, spread terror (andaversion to perceived risk) and to undermine thecohesion of society.

Proliferation of Weapons of Mass Destruction andthe likelihood of their use, inviting major retaliation,further global insecurity and threatening globalization.

Major interstate war – or equally significant civil war.

A two-way risk: a protectionist impulse in developedcountries and rising nationalism in developingcountries (and evidence of global inequality), drivingboth to attempt to slow or reverse globalization.

Pandemics in history. Typical pandemics: illness in30% of the population, with low mortality;occasionally, emergence of new viruses withconsiderably greater lethality. Estimated deaths fromthe Spanish flu: 40-50 million.

Earthquake hazard: not subject to human intervention andknowable likely frequency of events; however uncertaintyas to the consequences given the unpredictability of theevent, the role of geographical specificity, the scope fortriggering other risks (principally financial) and loss-sharingissues.

Discussion of the management of secondary impacts(disruption) of terrorism.

Evidence of the emergence of increasing numbers ofhome-grown “cells” with network links to Al Qaeda.

Changing nature of terrorist threat in south-east Turkey.

Debate around the role of foreign policy in managingdomestic threats, and questions of privacy and civil libertydomestically.

Key short-term issue: the management of Iran’s allegedattempt to build a nuclear device.

Key long-term issues: future of Nuclear Non-ProliferationTreaty, expansion of Proliferation Security Initiative andprevention of weapons’ capacity while allowing the spreadof nuclear power.

Likelihood of major interstate war largely thoughtanachronistic as a result of international law, norms andtrade. However, small risks of large-scale interstate conflictover the long term to be considered prudentially.

Failure to achieve agreement in discussions on worldtrade; growth of multilateral trade agreements.

Increasing use of anti-dumping measures in the developedworld; spread of nationalizations in vital industries indeveloping countries.

Rise of populisms in both the developed and developingworld.

The HN51 virus not yet a full-blown global pandemic; mayyet be displaced by an as yet unidentified possible virus.

In case of a pandemic, much dependent upon the rapidityof provision of effective vaccines, the speed of accurateinformation about the geographical extent of the pandemicand the extent of control over possible channels ofcontagion.

Risk Description Trends to watch

17

Most seismic activity in Europe is in south and south-east Europe (Italy, theBalkan region and Turkey). Most earthquakes have negligible effects; feware catastrophic - the 1755 Lisbon earthquake was credited by some withaltering European attitudes towards risk.

On one level, rising population density and the prevalence of industrialinfrastructure have made Europe more vulnerable to the impacts ofearthquakes than in the past.

Europe remains a major target for internationally-inspired terrorist activity;threat levels are estimated to have increased over the last year.

There was no major successful terrorist attack to November 2006; butmajor disruption and financial costs occurred as a result of the failedLondon plot.

The impact of a specific attack would depend largely on the nature of thetarget, location and timing.

Any attack would raise risks to social cohesion, and possibly enhance theemergence of home-grown terrorist cells.

Fully 20% of EU-25 citizens say they believe it “likely” that they will be thevictim of terrorism.

The limited spread of WMD would lead to a reassessment of Europeansecurity structures and strategy, and a possible restructuring of deterrentoptions.

Widespread proliferation of WMD would impact Europe’s world view andmight encourage retrenchment from globalization.

Europe’s ability to conduct out-of-area military operations remains limited -constrained by underinvestment and force structure.

The impact of a specific war would depend largely on the nature of the war,its location, timing and Europe’s involvement (if any).

Any major interstate war would increase economic uncertainty and threatenglobal security and trade structures.

Europe is already affected by populist currents calling for retrenchment from globalization.

A spread of such currents could lead to Europe’s retreat from globalcommitments; at its extreme, centrifugal tendencies could lead to thedecline of Europe’s single market.

Disinvestment from Europe, a fall in European investment abroad – areduced rate of return for European investments could make demographiccrisis more intractable.

In the long-term, an acceleration of continental decline and a reduced abilityto influence global events would be possible.

To consider the full impact of a pandemic is speculative. Europe has highquality health systems and well-developed public information, but thevirulence of the virus itself is crucial.

However, one can reasonably suggest that short-term economic impactswould include the severe impairment of service industries, as well as supplychains of manufacturing and retail industries. Over the longer term, deepshifts in social, economic and political relations would be possible.

Limited: Istanbul is the major European city most at risk from a majorearthquake (estimates of likelihood of 60-70% over the next 30 years). TheNorth Anatolian Fault is 20km south of the city. Retro-fitting, construction ofnew homes and city redesign may mitigate the impact of an earthquake onpotential high-risk areas.

High: Turkey’s role for mitigation of the terrorism risk is complex. Turkey’sexperience of terrorism, including the 2003 Istanbul bombings, gives it acrucial insight into counter-terrorism operations.

On the security level Turkey’s police, intelligence and military cooperationare major additions to European capability. Over the medium term,enhanced judicial cooperation might further strengthen common counter-terror initiatives.

Turkey’s continued good relations with the European Union and as asecular state undercut extremist arguments that Islam(ism) and democracyare mutually exclusive.

High: Turkey’s diplomatic links with Tehran and other Middle Easternpowers offer a potential channel of communication and influence over thefuture direction of proliferation.

Police, judicial, intelligence and military cooperation may boost Europe’scapability to prevent proliferation. Turkey hosted a PSI interdiction exercisein May 2006.

High: Turkey’s military capabilities and geopolitical location provide asignificant contribution to Europe’s capacity to prevent, respond to andmanage the risks of major interstate and civil war.

Turkey’s firm anchoring in Europe’s security architecture allows anenlargement of the security space; particularly in the Middle East, Turkeycan contribute to regional stability on Europe’s southern and easternborders.See further explanation on page 12.

Medium: Turkey’s ability to present itself as a globalizing dynamic partner toEurope may allow Europe to avoid both the cause of a potentialretrenchment against globalization and some of its worst consequences.

Much will depend on whether European perceptions of Turkey can bechanged from source of risk, to source of risk mitigation.

Dependent on the specific nature of the pandemic: Anatolia is crossedby two major bird migration routes – if the vector of the animal form of thedisease is birds, then effective and transparent identification and controlmechanisms in Turkey could give critical time to slow the spread of diseaseand allow for the development of possible vaccines.

If the disease became transmissible from human to human, cooperation onregulating population flows would become a vital mitigation measure.

Impact on Europe Turkish mitigation role

Dr Yılmaz Argüden11

For decades European development has beenguided by a number of key values: human rights,democracy, freedom of thought and belief (and ofthe press), free trade, the rule of law, laicism (in mostcountries) and multiculturalism.

Generations have been raised in an environmentpromoting these values. And these values have beencentral to helping Europe achieve historicallyunprecedented prosperity and stability. Yet Europenow faces a number of serious risks for the future:an ageing population, eroding competitiveness,limited military credibility and limited access to keynatural resources. Global institutions seeminadequate to the range of global risks facing theworld, from terrorism to climate change.

The true test of values is whether they can bemaintained when they run counter to the short-terminterests of these risks and challenges.

Already some conflict is emerging. Some keyEuropean values – such as free trade – arebeginning to hurt. Globalization has the potential tomake some people in Europe relatively poorer, evenif it helps global growth. Will Europe continue toopen its markets, and enable cross-nationalmergers, regardless of the nationality of newowners?

A similar question applies to transforming globalinstitutions along universalist lines which may runcounter to Europe’s interests. For example, it isdifficult to defend Europe’s two vetoes in the UNSecurity Council when India has none. Will Europebe able to accept the limits on its voting power thatwould stem from embracing a more democraticgoverning principle for global institutions?

Ultimately, trying to sustain unsustainable agriculturalor high social security subsidies and to limitinternational M&A, or even freedom of speech,12 willnot only cause potential conflicts with some keyEuropean values but will fail to protect Europe fromthe risks facing it.

Protectionist tendencies – economic or cultural – arelikely to delay, and therefore raise the costs, of

subsequent structural reform. Enlargement fatiguewill surely cause Europe to lose momentum as amodel for global governance.

Europe should adopt an offensive, not defensive,approach: continuing enlargement to export itsvalues and systems and at the same time clearlydemonstrating its commitment to these values by itsactions, avoiding double standards for short-terminterests.

The EU has the potential for global leadership, notby virtue of size or strength, but by being anexample. However, the EU must orient itself towardsimproving the world in line with its own values,instead of its current self-centred, protectionistapproach. Only in such a way can Europe deal withthe risks it faces itself – let alone help the process ofmitigating global risks.

Taking Opportunity

There is an opportunity for the EU for globalleadership. Since 9/11 the world has been subjectedto unilateralist policies; global sentiment has movedagainst the accumulation of power in a singlecountry. There is a growing wish for an alternativeapproach to global leadership, one not based onpower, but on values.

Building Power

But in order for the EU to exercise leadership, it alsohas to have sufficient power, defined in fivedimensions: political, economic, sociological,technological and military.

As a political project, the EU is an innovation wherecountries, without recourse to force, agree to sharesovereignty. However, it has become clear that boththe efficiency and legitimacy of EU decision-makingneeds to be improved. Both administrative systemsand individual perspectives need a more globaldimension to deal with future global and Europeanrisks. The EU can be a global model, but only if the

18

Europe’s Dilemma: Values vs Interests and Protectionism vs Leadership

“The true test of values is whether they canbe maintained when they run counter toshort-term interests…”

efficiency of decision-making takes precedence overprotection of the existing power equilibrium.

The EU is the premier global economic bloc, butcompetitiveness must be enhanced. Can the EU’spresent welfare mentality be maintained? From thepoint of economic development, the Lisbon goalscarry a lot of weight.13 Failing to reach them will posea major threat to aspirations to global leadership.

Sociologically, much store is set in Europe by“unity in diversity”. But tolerance and understandingare too often only for current citizens; nationalismand rejection of “the other” are growing trends, aswitnessed by immigration policies and attitudes toenlargement.

Technologically, there are a number of constraints.The EU has collectively made some significantadvances – adopting the GSM standard orimplementing common projects in the 7thFramework Programme. But financing for innovationand the spirit of entrepreneurialism remain weak.

Militarily, Europe lags well behind. Even in an erawhen world leadership depends less on militaryprowess, it is vital to share more significant militaryresponsibility in conflict regions of the world. The EUitself is a successful peace project and should focuson exporting this idea.

Creating Vision

In addition to opportunity and power, leadershipdemands vision. One very important messageshould be conveyed to Europe’s people: Europeshould not be about protecting narrowly-definedinterests, but creating a structure by whichEuropean values become a global norm.

And this requires consistency between words anddeeds in all EU actions. “European” values asdemocracy, human rights, rule of law,multiculturalism, protection of minorities and laicismhave to be applied consistently to gain the trust of

global citizens. Defence of self-interest – narrowlydefined – alienation of “the other”, fears overmigration, worries over innovations such as GMfoods and protection of low working hours will notallow the EU to maintain its existing prosperity, letalone attain global leadership to deal with globalrisks.

A True Test of Values: Approach to Membership of Turkey

To the surprise of many, after forty years of courting,Turkey successfully completed many reforms andsecured negotiations for accession to the EuropeanUnion. However, recent developments in thenegotiations are failing to create an impression ofmutually trusting future partners, but one ofEuropean reluctance to accept Turkey as an equalpartner. Unless this changes significantly, it will bedifficult to proceed on a win-win basis. This processwill turn into one side establishing ever changinggoal-posts and the other feeling alienated.

Yet Europe and Turkey have a historical opportunityto throw out the prejudices of ages, discredit the“clash of civilizations” and establish a stronger EU.Turkish membership presents the potential tomitigate some of the key risks for Europe, and helpthe EU to be a role model for global governance.

While the European population is ageing, Turkey isentering a “golden demographic period” similar towhat East Asia experienced in the 1980s. Thecontinuation of reforms in Turkey will not onlyincrease investments in Turkey, but make Turkeyindispensable. In contrast to European worries aboutinflows of migrants, Turkey, with her renownedhospitality, quality of medical care and pleasantclimate, may become “Europe’s Florida”, in terms ofattracting and caring for European retirees. While theimmigration of Turkish people will be limited,immigration of jobs will make up for Europe’sdeclining population. Automotive production hasstarted to move to Turkey – where the mostprofitable Ford and Fiat plants are located.

19

“Europe should not be about protecting…interests, but creating a structure by whichEuropean values become a global norm.”

“Turkey may become ‘Europe’s Florida’ in terms of attracting and caring for European retirees.”

Only a few emerging markets in the world have thepotential to be able to create a “virtuous investmentcycle” of exports and domestic demand. This is truenot only for products, but also for young managers.Young Turks are being employed by global firmsthroughout the world. The Chairman of Pfizer saidrecently that their most important export from Turkeywas qualified managers.

Overcoming regional political risks can only beachieved if economic development spreads. Andthroughout the region, Turkey is likely to be anengine of growth. As one observer put it, “Turkey willbe the ‘viagra’ for Europe” by becoming the keyagent to help improve European and regionalcompetitiveness.

A win-win approach on Turkey will be the key toaddressing European risks, and making the EU avalues-based global leader. Managing Turkey’srelationship with Europe relies on navigating the(sometimes false) dilemma in the title of this essay.

Good governance requires wisdom. Sufistphilosophy, which has an important place inAnatolian tradition, gives important advice. Thisphilosophy, based on “tolerance” and “harmony”,defines good governance as self-management.Good governance is to free ourselves from our fears,opening our eyes and hearts to new perspectives, to“regard others, as we regard ourselves.” Individuals,civil society, political statesmen, business peopleand managers of international organizations havecritical roles in accomplishing that goal.

20

Lebanese Prime Minister Fouad Siniora shakes hands with Turkish Foreign Minister Abdullah Gul, following talks on the deployment of international peacekeepers in Lebanon - 16 August 2006

Ahmet O. Evin14

Energy, security and regional stability are among theseveral areas in which Turkey can potentially play asignificant role in mitigating risks for Europe.Because of its geopolitical significance, historicconnections, familiarity with the major actors andinfluence in the region, Turkey is a natural partner foraddressing Europe’s security needs.

First, concerns over energy. Risks associated withEurope’s dependency on Russian gas came to theforefront last winter when on 1 January 2006 Russiasuspended delivery of natural gas to the Ukraine onaccount of the outstanding Ukrainian debt for energyimports from Russia. Given high EU dependency onRussian natural gas (as high as 80%, for example, inthe case of Germany), Russia’s sudden stoppage ofdeliveries raised serious doubts about Russia’sdependability as the EU’s major energy supplier.

Diversification of both energy sources and supplyroutes are essential for the EU. Positionedstrategically between key energy-producing regionsand energy-consuming Europe, Turkey is the keyactor to provide effective diversification of bothsources and routes, in terms of oil and, moreimportantly, natural gas. Over the past several years,Turkey has focused on the challenge of developinginto a major energy delivery centre. Caspian crudenow flows into Ceyhan; in the future, it is possiblethat part of Kazakh oil might be shipped across theCaspian to Baku for Ceyhan, circumventing Russiancontrol over its delivery. In addition, Ceyhan, which isthe terminal for the Kirkuk pipeline, may also receiveRussian crude through the proposed Samsun-Ceyhan pipeline.

Similar infrastructure development has beenachieved regarding natural gas: the Blue Streamconnecting Russia under the Black Sea completedin 2003; direct connection from Iran since 2002; andthe more recent Baku-Tbilisi-Erzurum pipeline thatconnects Shah Deniz gas field in Azerbaijan.

For Turkey to play an effective role in risk mitigation,however, the necessary infrastructure has to becompleted. Two essential projects have beenmoving too slowly: one is the Nabucco pipeline thatwill be connected with the Tebriz (Iran) - Erzurum

pipeline, and with the South Caucasus pipeline,connecting to the planned Trans-Caspian Gaspipeline. Once completed, this would allowtransportation of natural gas from producers in theMiddle East and Caspian region such as Iran,Azerbaijan and Turkmenistan to Western Europe viaAustria. Although included in the EU Trans-EuropeanEnergy Network programme, the Nabucco pipelineis expected to begin only in 2008 and is planned tobe finished by 2011. The second is the Turkey-Greece-Italy interconnector of the Nabucco pipelinethat will run across Greece and under the AdriaticSea. Recently, US officials have also admonishedTurkey to move faster and support the constructionof both the Nabucco pipeline and its interconnectorto Greece.

Second, the security issue flows from this last point.Since World War II, the US has viewed Turkey notmerely as ally but as an integral part of the Westernsecurity family. For that reason, despite the seriouscurrent strains in its relations with Turkey on accountof the Iraq war, the US continues to actively promote(sometimes to the chagrin, even exasperation, of itsEuropean allies) Turkey’s EU membership. Thecurrent transatlantic tensions resulting also from theIraq war notwithstanding, the maintenance of acoherent and sustainable European security area isconsistent with long-term US interests, even if theUS is in the course of shifting the focus of itsstrategic interests from Europe to other parts of theworld.

Although precipitated by nearly the same reason, thecurrent tensions between the US and Turkey on theone hand, and most Western European countries onthe other, have not had the effect of moving Europeand Turkey closer to one another. The cumulativeeffect of sustained US advocacy of Turkishmembership, however, has not been negligible, atleast as far as its impact on European policy-makersis concerned. Turkey is recognized as a securityasset in both Europe and the US, but in the EU,issues relating to the Security and Defence Pillar areseparated, institutionally and politically, from thosepertaining to Enlargement.

While it is a key actor, Turkey ought not be perceivedas a potential glue to mend Euro-Atlantic relations:transatlantic mediation is highly unlikely to be

21

Risk Mitigation: Conditions and Prospects for Turkey’s Potential Role

channelled through Ankara. It is only sensible toexpect a gradual convergence of the EU and USpositions regarding Turkey, leading to the realizationamong European leadership that Turkey would be agreater security asset as an EU member state thanotherwise.

Third, the question of regional stability constitutes acrucial independent variable concerning Europe’ssecurity. As a result of the failure to stabilize Iraq, USand UK troops are likely to be withdrawn from theremuch faster than the White House or DowningStreet would like to admit. In the continued absenceof order, Iraq, now engaged in a civil war, poses thethreat of becoming an incubator for terroristnetworks. Anarchy in Iraq, moreover, is likely to bringinto the fray uncouth and unpredictable actors,threatening further regional destabilization.

In the near future, the Middle East (both the greaterand the classic, narrower, definitions of thatconstruct) is expected to pose an increased securitythreat to Europe. With its understanding of regionalpolitical cultures, Turkey is a natural interlocutor andremains a stabilizing influence, despite its ownproblems with renewed terrorist activity resulting alsofrom the prevailing chaos in Iraq. Turkey can helpmitigate these security threats as an integrated partof a broader zone of stability that only an enlargedEU will be successful in achieving.

In assessing Turkey’s ability to achieve its potentialto mitigate risks (and project an effective stabilizinginfluence), three factors need to be taken intoaccount.

1. 2007 is an election year during which bothparliamentary (general) elections will be held anda new president will be voted by the parliament.As a big country, Turkey has a tendency(somewhat like the US) to place priority ondomestic issues, particularly during times ofelectoral contest. There remains the possibilitythat, over the next 12 months, Turkey’s politicalagenda might be shaped by issues of overridingdomestic concern, while relations with Europe areleft to simmer.

2. Turkey’s regional and international weight andinfluence are directly correlated to the size of itseconomy as well as its macroeconomic stability.Thanks to both the reforms following the 2001crisis, and the lessons learned nationally, Turkeyhas achieved high growth rates while bringingdown inflation and scoring success among theemerging markets. However, growth and theincreased value of the currency have fuelledconsumption resulting in growing current accountdeficits, which are offset by inflows in severalcategories: hot money buying sovereign debt orcompany shares, sale of assets throughprivatization, and foreign direct investment. Onlythe latter form of inflow contributes to theeconomy in a stable and sustainable fashion. If,however, populist economic policies are avoidedin this double election year, Turkey is likely toemerge as an even more influential actor and amore desirable candidate for Enlargement.

3. Most import is the fact that Turkey’s progresstowards establishing itself as an energy hub putsit into the midst of political rivalries and competingagendas of powerful global actors vying forcontrol over energy supplies. Energy interests andneeds (and the powerful leverage that stems fromthe control of energy assets) pose anunstructured problem for which there exist nosimple equations or solutions. Helping to providediversified energy sources and supply routes tomitigate Europe’s risk, for example, does notchange or challenge Russia’s overriding powerand control over the production and distributionof oil and gas from the Urals to the Pacific.

Exposed to the crosswinds generated by USobjectives, Russian ambitions and EU interestsconverging on the Euro-Atlantic area’s energyassets, Turkey cannot avoid being a key diplomaticactor on the centre stage. The challenges facingTurkey, as well as the economic and politicalrewards these challenges entail, require the kind ofsophisticated leadership capable of implementingand orchestrating policy that is becomingincreasingly hard to find, given the populistdomination of the political arena in today’s world.

22

Sinan Ülgen15

In the post-9/11 world, the relationship betweenIslam and the West is among the most seriouschallenges to global stability. Recent episodes –from the publication of cartoons consideredblasphemous by some, to the recent speech givenby the Pope at Regensburg university quoting a14th century Byzantine emperor – have made for aseries of crises portrayed by many as vindication ofthe notion of a clash of civilizations.16

For the West, the challenge has an internal as wellas external dimension. Internally, Western societiesare compelled to address the problem of integrationof their Muslim communities into the mainstream.Islam is now Europe’s second religion, with some 13million Muslim European citizens. At the same time,externally, Europeans are increasingly aware of theneed to establish a harmonious relationship withEurope’s neighbourhood, including the widerMediterranean basin. .Turkey's relationship with the West in general, andwith the EU in particular, should be viewed againstthis backdrop. Indeed the evolution of this crucialrelationship stands to have a significant impact onboth these challenges, internal and external.

Turkey has been a secular republic since 1924 and amultiparty democracy since 1950. It has embracedfree market economics and ensured the rule of law.As such, Turkey provides a rare example of apredominantly Muslim country where the applicationof what can historically be termed as the values ofwestern civilization are well established. Yet beyondthe obvious choice of Turkey as a role model for thepolitical development of other states in the region,what is even more important from a Europeanperspective is its creation of a unique politicalculture. Indeed, Turkey demonstrates the possibilityfor a Muslim community to fully embrace thefundamental European values of democracy,tolerance, rule of law and liberal economics.

It is this dimension which is the essence of Turkey’srole in assisting future social integration in Europe,and helping mitigate a number of risks to Europe’sfuture. It demonstrates that there are noinsurmountable barriers to integrating Muslimcommunities into European societies, if we define

integration as a process of mutual understandingbased on the sharing of a set of fundamental values.Present tensions and difficulties can be viewed asthe consequences of the naïve or misguidedintegration policies of the past, rather than as thenecessary by-product of some more fundamentalobstacle to integration.

This observation has important consequences forEurope in terms of what immigration and integrationpolicies it should adopt – and ultimately for socialpeace.

First, as long as Turkey’s journey towards deeperintegration into European institutional structuresremains on course, Turkish political culture shouldcontinue to evolve in the right direction, creating anever more solid basis for demonstrating thecompatibility of Islam with the fundamental values ofEuropean civilization. This constitutes one of themost potent rebuttals of the thesis of civilizationalincompatibility championed by religiousfundamentalists and radical politicians alike inEurope and beyond.

Second, Turkey is well placed to play a more activerole in the future in ensuring the improved integrationof Muslim communities into European societies.Thus far, Turkey's ability to act in this manner hadbeen limited due to the past nature of mostimmigration policies in Western Europe, wheremigrant communities were often viewed by their hostcountries as a temporary phenomenon needed to filljobs, with the immigrants set to return to theircountries of origin at some future point in time. InGermany, where citizenship laws were based onblood-ties and the Turkish-origin population wasreferred to as “Gastarbeiter”, the temporary nature ofsuch migrant communities was explicit.

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Turkey’s Role in Mitigating Europe’s Social Risks

“Present tensions and difficulties [in therelationship between Muslim communitiesand European societies] can be viewed as theconsequences of the naïve or misguidedintegration policies of the past, rather than asthe necessary by-product of some morefundamental obstacle to integration… Turkeyis well placed to play a more active role in thefuture in ensuring improved integration…”

However, with more proactive integration policiesnow in place in many of those countries, Turkeycould contribute much more extensively to theintegration process through its official andinstitutional capabilities as well as its dynamic civilsociety organizations. It should be recalled thatTurkish institutions are already quite active in battlingthe rise of religious extremism in the form of theWahhabi branch of Sunni Islam in such places asBosnia or Macedonia. Turkish civil societyorganizations are already establishing partnershipswith their counterparts formed by Turkish migrants inWestern European societies to assist with theirpolitical, economic and social integration into theirhost countries. This has been particularly the case inGermany.17

The potential role of the Turkish media can also beunderlined here. Turkey boasts a rich and diversemedia landscape. Technological developments suchas the advent of the Internet and satellitebroadcasting have massively extended the reach ofmedia across national borders. The footprint ofTurkish TV broadcasts covers the whole of Europe,the Middle East, northern Africa as well as CentralAsia. These images, reflecting contemporary Turkishculture, arguably have a strong influence on theevolution of the political culture of the Turkish-originDiaspora in Europe, Turkic-language cultures andbeyond.

The future social well-being of European societieswill depend on the ability of European governmentsto deal sensitively and intelligently with the impact ofpast and current immigration. Failure wouldstrengthen tendencies towards polarization andalienation, creating an environment conducive to therise of political extremists, further underminingEurope’s social fabric and hampering its ability toface up to the landscape of global risks with which itis confronted.

The risk of such a failure is real. But through itsaccumulated experience and growing capacities,Turkey can help prevent it. Indeed, Turkey can makea major positive contribution to the establishment ofthe right conditions in Europe for the lasting socialpeace necessary for Europe to confront together thelong-term risks to its prosperity and security.

24

Schoolchildren in Turkey; Turkey’s demographic profile mayhelp Europe cope with its own ageing population

Chrysostomos Sfatos18

The bilateral relationship between Greece and Turkeyhas improved dramatically in the past 10 years sinceTurkey has shown an active interest to move forwardwith her bid to enter the European Union, andGreece started endorsing the process, concludingwith full support for Turkey’s accession. In the past,Greek-Turkish relations were often seen as a zero-sum game: the strength of one implied theweakness of the other. Individual strength, therefore,became a risk; today mutual strength is understoodas an opportunity. A similar transformation of widerEuropean perceptions of Turkey – from risk toopportunity – may be needed.

Greek elites understand that a stable andpredictable Turkey complying with European Unionlaw is a desired neighbour with whom Greece candevelop further ties on the foundation of commonvalues and principles. Somewhat surprisingly, thisattitude has gained support very quickly among thebroader public, with some opinion polls in Greece in2006 showing support for Turkey’s entry into theEuropean Union rising to 45%.

This new era of Greek-Turkish rapprochement wastriggered by so-called earthquake diplomacy,whereby earthquake recovery assistance from bothsides after two catastrophic earthquakes in Istanbuland Athens in 1999 was followed by warm politicaland business exchanges.

But the main reason behind this rapprochement wasthe integration of the bilateral relationship betweenthe two counties into the multilateral context ofTurkey’s talks with the European Union. Throughoutthe Cold War, Greece felt itself to be the weakerparty, given the perceived higher importance placedon Turkey as a strategic ally of the West confrontingthe Soviet Union, and the losses and trauma of theCyprus conflict.

In the late 1990s, however – nearly 20 years afterGreece joined the EU – the country felt leverage forthe first time, and committed to using itconstructively. In an improving relationship, Turkeywould have to comply with a set of requirementsdictated by the European Union, not as a result of abilateral and bitter give-and-take negotiation. The

thorny issue of a resolution of the Cyprus conflictwas recast in the multilateral context of theEuropean Union (and the United Nations, althoughwithout a successful outcome).

Given this new environment, successive Greekgovernments were freed to develop the bilateralrelationship in a new direction, primarily theeconomic relationship, by consigning some of themost difficult issues to the dialogue between the EUand Turkey, and thereby circumventing any risk of apublic opinion backlash for having ignored Cyprus orother territorial disputes.

This approach has created considerable room forcollaboration both in the public sphere and for theprivate sector. Moreover, the approach hasgenerated tremendous forward economicmomentum, particularly given Turkey’s commitmentto applying conditions of fiscal austerity andmacroeconomic stability.

One can draw out two main points about thebenefits of the existing multilateral dialogue from allperspectives:

1. Multilateral dialogue is based on principles whichare considered objective, universal, beyonddispute and bias; and,

2. Multilateral dialogue has allowed bilateral relationsto jump ahead and gain momentum by bypassingthe sensitive political issues which have beenmade part of a multilateral agenda.

By extrapolation, one can argue that membership ofthe European Union for Turkey would allow thecreation of novel approaches to the perennialsources of risk, both to Turkey and more broadly toEurope.

To take one major example from the Turkish point ofview, the Kurdish issue could become a matter of

25

From Risk to Opportunity: How MultilateralizationHas Changed Greek Attitudes to Turkey

“In the past…relations were often seen as a zero-sum game….Today, mutual strength is understood as an opportunity. A similar transformation of wider Europeanperceptions of Turkey – from risk toopportunity – may be needed.”

regional development. In the future, Kurds livingrelatively prosperously in south-eastern Turkey with aEuropean Union passport and human rightsprotected by European legal instruments will havelittle desire to rebel or to create an independent orautonomous region outside the European Union. Bymultilateralizing what is currently understood inTurkey specifically as a risk to the Turkish state, thesource of the risk may be mitigated.

Conversely, from the EU perspective, energy securitycould be a key mitigation gain. As a member of theEuropean Union, Turkey will necessarily side with theEU on major geopolitical issues and be constrainedto satisfy European demands for energy security.Indeed, multilateral European energy policy wouldlargely dictate national Turkish policy, thus mitigatingsome of the risks to Europe of a major supplyshock.

As Greece has learned, scaling up the relationshipfrom bilateral to multilateral is the best way tosmooth out differences and overcome the small-picture details that block the large-picture vitalinterests.

Such transformations have completely changed thepsychological climate of Greek-Turkish relations inthe past ten years and allowed the two sides torecognize that they have much to gain fromcooperation with the frameworks set out byuniversal and commonly-accepted rules. Whateverconcessions that would affect bilateral or nationalissues are shielded by broader gains in themultilateral agendas.

26

“By extrapolation, one can argue thatmembership of the European Union for Turkeywould allow the creation of novel approachesto the perennial sources of risk, both toTurkey and more broadly to Europe.”

Building of a railway tunnel underneath the Bosphorusconnecting the European and Asian continents

Katinka Barysch and Charles Grant19

During the first year of EU-Turkey accessionnegotiations, one thing has already becomeabundantly clear: Turkey’s path will be rocky. It mayeven lead to nowhere. Olli Rehn, the EU’senlargement commissioner, famously warned of a“train crash” in EU-Turkey accession negotiations,caused by either disagreements over Cyprus and/orthe slowdown of political reform in Turkey.

The EU and Turkey may manage to salvageaccession talks in 2006, but the risk that they mayfail in subsequent years remains substantial. Even ifthe EU overcomes hostile public opinion and GreekCypriot stubbornness, a disillusioned Turkey maydecide to turn its back on the EU. What would bethe consequences?

The most immediate impact would be on Turkishpolitics. The goal of joining the EU has helped toglue together an array of political forces, includingKemalists, Islamists, nationalists and liberals. If thisglue dissolves, Turkey may return to the bad olddays of political instability. “We told you the EUwasn’t serious,” the nationalists would say,promoting the idea of a sovereign and independentTurkey. The hopes of the Kurdish minority to obtainbetter rights under the aegis of the EU woulddwindle. The more traditional Islamist factions inPrime Minister Erdogan’s AKP would feelreconfirmed in their view that Turkey was nevergoing to be a mainstream European country anyway,and they could make a new push to achieveobjectives such as changing the rules on wearingthe veil in public places. This, in turn, would fuel theKemalists’ suspicion that the AKP’s hidden agendawas to undermine Turkey’s secular traditions. Theliberals – who have seen the EU as an anchor forTurkey’s modernization – would be close to despair.The Turkish army would be on stand-by once again,ready to take over if and when the countrydescended into political turmoil. The positivemomentum of political reform would stall.

Political instability would not bode well for economicpolicy and investor confidence. In less than fiveyears, Turkey has managed to graduate fromeconomic basket case to growth story. Since thelast meltdown in 2001, real GDP has expanded by

7% a year on average, inflation is down to singledigit figures for the first time in decades, and FDI hasrisen from next to nothing to €10 billion a year.Jitters in currency markets no longer lead to crises.More responsible policy-making and the prospect ofconvergence with the EU appear to have put a floorunder the lira. Both the IMF and the EU haveunderpinned these improvements: the IMF bylimiting Turkey’s traditionally spendthrift policies; andthe EU by nudging Turkey to adopt more liberal andtransparent rules in competition, telecoms andbanking.

The IMF is still holding Turkey’s hand until 2008,when the current stand-by agreement runs out. Afterthat, the risk of macroeconomic slippage wouldincrease. With the EU anchor gone as well,microeconomic reforms may also stall. Turkey wouldpresumably maintain its customs union with the EU(although Turks have tended to see this as apreliminary step towards membership). But thegovernment would see little need to make furtherprogress with bringing its business environment inline with EU requirements. As a result, WestEuropean businesses would feel less at home inTurkey. The spectre of less foreign investment mustbe hugely uncomfortable for a country that runs anannual current-account deficit of €20 billion.

German politicians in particular argue that, if EUaccession negotiations fail, Turkey could bepersuaded to accept a “privileged partnership”instead. For those opposed to Turkish membership,this represents the best possible outcome: Turkeywould still be closely aligned with the EU but itwould not have a seat at the decision table. Norwould it get much money. But this view may be toosanguine. An angry and disappointed Turkey willprobably say “No thank you” to any close EUrelationship that falls short of full membership. ManyTurks would argue a mixture of close economic ties(in the shape of the custom union) and arms-lengthpolitical relations are better than being fobbed offwith a “privileged partnership”.

Political and economic instability in Turkey would notonly be bad news for Turkey itself. It would also bebad for Europe. There would be opportunity costsfor the European economy: Turkey’s fast-growingeconomy adds a degree of dynamism. And Turkey’s

27

Dealing with Risk: If Turkey and Europe Break Up…

€

young and fast-growing workforce could help otherEuropean countries mitigate their demographicproblems.

An end to accession talks would also have anegative impact on EU foreign policy. It woulddamage the EU’s ability to influence the Middle East,and would not help its role in the Islamic world.Turkey’s accession process has provided Europewith an invaluable commodity in the Islamic world:credibility. An EU that rejects Turkey could be seenas a Christian club; its potential to play a leading rolein the Middle East peace process would diminish.

And then there are implications for wider Europe. Anend to accession would not be good for Turkish-Armenian relations. Turkey knows that if it wants tojoin the EU, it will need to reopen its frontier withArmenia. Take away the goal of EU membership,and Turkey has few incentives to do that. Continuingpoor relations between Turkey and Armenia wouldensure that Turkey had little influence over theNagorno-Karabakh peace process, and wouldminimize its influence over the Caucasus regiongenerally.

Rejected by the EU, Turkey might turn its attentionto other potential allies. Russia has already takensteps to woo Turkey. Trading and political ties haveburgeoned. Many senior figures in the Kremlin arguethat both countries are outcasts from the Europeanmainstream and should therefore stick closelytogether. There are other similarities as well, forexample the two countries’ tendency, in difficulttimes, to resort to nationalist posturing or paranoia.

Russia is not only looking for friends. It is alsoworried that a more European Turkey wouldundermine Russia’s hold over European energymarkets. At present, most of Europe’s gas comesthrough pipelines that run over Russian territory. Butthe EU wants to diversify in the name of energysecurity. Almost all alternative routes for gas from theCaspian and the Middle East would go throughTurkey. Turkey cherishes its growing importance as aEuropean energy hub. But if it turned away from theEU, towards Russia, the EU may find it a lot moredifficult to decrease its reliance on Russian energy

and pipelines. Closer political ties to Russia,however, are unlikely to undermine the overallwestern orientation of the economy.

A closer Turkish-Russian alliance could also haveimplications for Cyprus. Russia has been protectingCyprus at the United Nations, preventing the UNSecurity Council from passing resolutions that arecritical of Greek Cypriot obduracy. There are somesigns that Moscow may be reconsidering. However,a shift in Russian policy would be immaterial if EU-Turkey relations broke down – because this wouldalmost certainly end hopes of reuniting the island.Without the goal of EU accession, Turkey has fewincentives to make the concessions required to getthe Greek Cypriots to compromise and accept arevised version of the Annan plan. Northern Cypruswould in the long term head towards gradualintegration with Turkey – even if the “TurkishRepublic of Northern Cyprus” claimed to be anindependent state.

A disappointed Turkey would look around itsneighbourhood for allies. At various times since thebreak up of the Soviet Union, Turkish politicians havetalked of reviving their country’s ancient cultural tieswith the Central Asia states (all of which speakTurkic languages, bar Tajikistan). But little has comeof it, and Central Asia does not provide a seriousalternative to Europe, given the small size of theCentral Asian economies. Russia and China willremain the dominant countries in the region. TheAKP government has taken a closer interest in theIslamic world than earlier secular governments.Turkey has become an active participant in meetingsof the Organization of Islamic Conference. If talkswith the EU collapsed and AKP stayed in power,these ties would probably deepen.

Nevertheless, even if EU talks collapse, Turkey’soverall orientation – both in trade and politics –would remain westward. Turkey would continue tomodernize and open its economy, and consolidateits democracy. However, progress would be muchslower and more patchy than it would be if Turkeystayed on the EU accession path.

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1 More information on the Global Risk Network canbe found atwww.weforum.org/en/initiatives/globalrisk/

2 The 2006 Global Risk Report released at theForum’s Annual Meeting in January 2006 can befound atwww.weforum.org/pdf/CSI/Global_Risk_Report.pdf. An extensively updated report will be releasedahead of the Annual Meeting 2007 in January.

3 Later turned into a blockbuster film, “Valley of theWolves Iraq”, this single issue has been part of amajor repositioning of Turkish popular attitudesregarding the United States.

4 Philip Gordon and Omer Taspinar, “Turkey on thebrink”, Washington Quarterly, Summer 2006.

5 Attitudes towards European Enlargement,Eurobarometer, July 2006.

6 More information on The Global CompetitivenessReport 2006-2007 can be found atwww.weforum.org/en/initiatives/gcp

7 McKinsey Global Institute, Making the Productivityand Growth Breakthrough, 2003.

8 Economic Survey of Turkey 2006, OECD,published 18 October 2006. Available atwww.oecd.org/turkey

9 The Long-Term Sustainability of Public Financesin the European Union, European CommissionDirectorate General for Economic and FinancialAffairs, October 2006.

10 The Coming Demographic Deficit: How AgeingPopulations Will Reduce Global Savings, 2005,McKinsey Global Institute.

11 Dr Yılmaz Argüden is Chairman of ARGEConsulting, Senior Adviser and NationalRepresentative of Rothschild Investment Bank inTurkey, a columnist, and an Assistant Professor ofStrategy at the Bosphorus University and theMBA programme of Koç University. He wasselected as a “Global Leader for Tomorrow” bythe World Economic Forum.

12 Such as the recent law passed by the Frenchparliament.

13 A status report on Europe’s progress towards theLisbon goals by the World Economic Forum’sGlobal Competitiveness Network will be releasedon 23-24 November at the World EconomicForum in Turkey.

14 Ahmet O. Evin is Professor at Sabanci Universityin Istanbul.

15 Sinan Ülgen is Chairman of the Centre forEconomics and Foreign Policy Studies (EDAM),based in Istanbul.

16 Samuel Huntington’s article, “A Clash ofCivilizations?”, appeared in Foreign Affairs in theSummer 1993 edition. His thesis was expandedupon in a 1996 book, The Clash of Civilizationsand the Remaking of the World Order. That bookdescribes an “emerging alignment” of civilizations,with the considerable degree of conflict in thecivilizational relationship between “Western” and“Islamic” civilizations.

17 According to a recent survey (October 2006)conducted for the German magazine Stern, 71%of German Muslims of Turkish origin feel“strongly” or “very strongly” integrated. 73%choose Germany as the place they most want tolive; 19% in Turkey. However, 46% expressed theview there is some incompatibility between therules of Islam and the rules of German society.

18 Chrysostomos Sfatos is Director of InternationalRelations at Intralot in Greece.

19 Charles Grant is Director of the London-basedCentre for European Reform. Katinka Barysch isChief Economist at the Centre for EuropeanReform.

29

Footnotes

30

Ahmet AkarliGoldman Sachs Asset ManagementInternational

Ali Riza AlaboyunMember of the National Assemblyof Turkey

Yaprak AlpMission of the Republic of Turkey tothe EU

Yılmaz ArgüdenARGE Consulting

Koray ArikanJP Morgan Chase Bank

Mustafa BagriacikGoldman Sachs International

Emanuele BaldacciSace SpA

Katinka BaryschCentre for European Reform

Murat BayerSabanci University

Rana E. BirdenARI Movement

Joachim BitterlichVeoilia Environnement

Ferhat BoratavCNN Türk

Esra BulutInternational Crisis Group

Ali CarkogluHaci Ömer Sabanci Holding AS

Matti CastrenSuez

Nuri M. ColakogluDogan Media Group

Charles EmmersonWorld Economic Forum

Ahmet EvinSabanci University

Christian GheorgheWorld Economic Forum

Charles GrantCentre for European Reform

Douglas GregoryIBM

Bulent GultekinThe Wharton School, University of Pennsylvania

Felix HowaldWorld Economic Forum

Kirsty Hughes

Gareth Jenkins

Gülsen Karanis Azizler Holding AS

Stephen M. KehoePepsiCo

Gurtay Kipcak The Coca-Cola Company

Nilden Kirectepe Sabanci University

Oya Unlü Kizil Koç Holding AS

Joost LagendijkMember of the European Parliament

Michael LeighEuropean Commission

Kai LückeACEA

Meltem Mulfuter BaçSabanci University

Kadri OzenThe Coca-Cola Company

Alessandra PerrazelliBanca Intesa SpA

Wolfgango PiccoliEurasia Group

Giuseppe ScognamiglioUniCredit Group

Ercan SendilMission of the Republic of Turkey to the EU

Benita SironeWorld Economic Forum

Jamie SheaNATO

Chrysostomos SfatosIntralot SA

Sinan ÜlgenCentre for Economic and ForeignPolicy Studies

Suna VidinliDogan Media Group

Semih YalmanDogus Group Company

H. Cuneyd ZapsuAzizler Holding AS

31

List of Participants

The World Economic Forum thanks those who participated in the two workshops leading to this report, inIstanbul in July and in Brussels in October.

The World Economic Forum is an independentinternational organization committed to improvingthe state of the world by engaging leaders inpartnerships to shape global, regional andindustry agendas.

Incorporated as a foundation in 1971, and basedin Geneva, Switzerland, the World EconomicForum is impartial and not-for-profit; it is tied tono political, partisan or national interests.(www.weforum.org)