Not for the first time in Europe, Greece and Turkey are occupying the headlines. As the drawn-out Greek dispute with its creditors spirals towards yet another climax, Turkey has held an election that raises as many questions as it answers. Vicky Pryce says the four-month interim accord between Greece and its creditors has produced little apart from leeway for the European Central Bank to bring in quantitative easing which could protect other euro members from contagion after a Greek exit. The fundamentals of the euro area economy and Greece’s place within it, she says, remain much as they were before Alexis Tsipras’ January election victory.
In Turkey, electoral developments throw up a different set of uncertainties. As our long-standing Istanbul-based advisory board member David Tonge explains, Turkish voters have rejected the expansionary ambitions of President Recep Tayyip Erdoğan, but have opened the way to a period of fraught coalition-bargaining that, at least temporarily, will damp the economy. Korkmaz Ilkorur, a new member of the advisory board, recommends financial service reorganisation as one of a series of reforms to improve the economy. Gündüz Fındıkçıoğlu says need for reforms is so pressing that whatever government takes power will have no alternative but to decide them. Surveying another European hotspot, over the Ukraine, Michael Stürmer urges a new round of east-west diplomacy to overcome cold war-style fault lines. He calls for new models of self-restraint and mutual self-respect of the sort displayed by the US and the Soviet Union in the 1960s. Willem Middelkoop analyses the reasons behind US opposition to the Asian Infrastructure Investment Bank and says it shows how the US is losing world influence. In the UK, after the May general election and David Cameron’s surprising win, Gerard Lyons says the Conservatives stand ready for reforms – and private sector investment will be the decisive test. An overriding influence on the world economy remains the likelihood that US interest rates will rise later this year for the first time since the financial crisis. This will have notable effects on countries like Turkey which need to finance large current account deficits – and could come at just the wrong time for a euro area still struggling with the Greek dilemma and its aftermath.
As Darrell Delamaide explains, weak US first-quarter data have strengthened the Federal Reserve doves, with the unusual support of Christine Lagarde, managing director of the International Monetary Fund. However the robust US non-farm payroll release on 5 June has added to pressure for the Fed to move sooner. To the south of Washington lies another problem country – Venezuela. A veteran of Latin American monetary disputes, Steve Hanke, says dollarisation is Venezuela’s best hope – with Ecuadorian experience providing a sound template. William Keegan rounds off June’s coverage with a review of Good Times, Bad Times: The Welfare Myth of THEM and US by John Hill, which explores the extent to which the UK welfare net has been damaged by recent policies. Across the developed world, as well as in emerging market economies, budgetary discipline will need to be accompanied by new thinking on welfare and social support for the underprivileged.