A Major Growth Market for Years to Come? after the Sound of Fury of Turkey's European Union Woes Last Year, the Partial Suspension of the Country's Membership Talks Has in Fact Caused Little Upset to Its Financial Markets and Economic Performance

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THIS SMOOTH RUNNING shows some underlying strengths--as well as some good preparations by the country's investors. However, Turkey is by no means out of the woods, with a year of political uncertainty ahead as both presidential and parliamentary elections loom.

As 2006 came to an end, newspapers and TV reports in Turkey and around Europe were dominated by predicting a coming 'train crash' over Turkey's EU accession talks, which started back in December 2004.

The major cause of this widely expected disaster was the old conundrum of Cyprus. The argument this time was that Turkey had failed to open its ports and airports to Greek Cypriot ships and planes, despite this being a condition of the talks starting back in 2004. Turkey claimed that it was waiting for the EU to deliver on its promises of support for the Turkish Cypriots before it would open up. Such support has been largely blocked by the Greek Cypriots, who fear it could lead to de facto recognition of Turkish Cypriot control of the north of the divided island.

As this dispute pits the immovable object against the irresistible force--allowing Greek Cypriot ships in would also be seen by many Turks as recognition of Greek Cypriot legitimacy on the island--it was never going to be resolved short of a major breakthrough in the Cyprus dispute overall, an event for which few are holding their breath on any side.

Yet, with the Greek Cypriot dominated Republic of Cyprus already an EU member, and Turkey obliged under the terms of its existing customs union agreement with the EU to bring northern Cyprus also under the terms of this union, it was Turkey that would have to be punished for its transgressions.

After much dispute, and talk of suspending the entire accession process from those opposed to it from the beginning, a final deal was struck. Turkey has to pass through 35 'chapters' of the accession treaty, each dealing with a different topic, and eight of these, the EU decided, would be suspended prior to a resolution of the Cypriot ships and planes issue.

This meant that the accession process could continue, with talk of the statistics chapter and the enterprise and industry chapters being next in line for discussion. So far, only the science and technology chapter--known as the least controversial of all 35--has been completed.

While some might see the true genius of the EU as its ability to come up with such arrangements, neatly enabling business as usual to continue while also allowing all parties to claim victory back home, the Cyprus issue does still remain a potentially harmful thorn in Turkey's side. The eight chapters suspended are those thought to contain items which would be directly affected by the Cyprus issue. Yet this dispute has a way of coming up in unexpected places elsewhere--indeed, making it turn up in such places is a key part of Greek Cypriot politics. For example, a discussion on banking may not seem to require a solution to the Cyprus problem, but if Turkey does not recognise the Cypriot Central Bank, how is such a discussion to proceed?

Nonetheless, with the eight chapter suspension flagged up some way in advance, the Turkish economy was barely affected by the dispute, as businesses and investors had factored it into their plans some months before.

"We were expecting it," says Garanti Securities' Gizem Oztok. …