Europe on the edge

Banks brace for turmoil as Trump sanctions shatter Turkey

THE fallout from Donald Trump’s trade war with Turkey – which has sent the country’s currency plummeting – may lead to financial turmoil across Europe, experts fear.

The warning comes after the Turkish lira fell by an astounding 20 per cent on Friday. The currency has halved in value over the past year.

Last week’s freefall followed the US doubling import tariffs on Turkish steel and aluminium.

Turkey’s president Recep Erdogan has said his country is now in a state of “economic war” with America.

Banks across Europe, which have loaned billions of euros to Turkey, may now be exposed, as businesses there struggle to make repayments.

In the worst case scenario of the collapse of a European bank, there could be “contagion” – other countries and banks may be imperilled – raising the spectre of the economic turmoil that followed the 2008 global banking crisis.

Announcing that aluminium tariffs will rise to 20 per cent and steel tariffs to 50 per cent, Mr Trump said on Twitter that US relations with Turkey “are not good at this time”, and seemed to gloat at the country’s misfortunes. He wrote: “I have just authorised a doubling of tariffs on steel and aluminium with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong dollar!”

Neil Wilson, chief markets analyst at trading platform markets.com, said that the financial markets faced their most serious threat since the debt crisis that engulfed Eurozone states following the financial meltdown. He said: “There is definitely contagion from Turkey across emerging markets. The chief risk is this results in a fully fledged emerging markets crisis.”

He added: “It could ultimately spark a recession in developed nations too.” The turmoil could result in a further strengthening in the dollar.