In my piece on Saturday (“Is the Turkish economy resilient to political shocks?”), I pointed out two issues: First, I argued that the actual corruption scandal will not affect macroeconomic stability.
In other words, the speculative attack against the Turkish lira will deflate sooner or later. However, one must expect non-negligible damage to the real economy caused by lower growth and higher unemployment. Let me remark that yesterday the Bourse İstanbul (BIST) was up more than 2 percent and the exchange rate was down slightly. As for my second point, I argued that the most critical political issue will be the share of the vote won by the incumbent Justice and Development Party (AK Party) in the local elections on March 30. Indeed, the extent of the probable decline in this share will decisively affect the future of Turkish democracy.
Once I had sent my article to my editor, I became acquainted with two stories regarding corruption, economics and voting behavior. A colleague from the Bahçeşehir University Center for Economic and Social Research (BETAM) sent me a piece by Joshua Tucker, a professor of politics at New York University, that was published on the website of The Washington Post on Dec. 26 and titled “Talking Turkey: How does corruption affect voting behavior?” In it, Tucker summarizes the findings of a recent article he co-authored titled “The economy, corruption, and the vote: Evidence from experiments in Sweden and Moldova” (Electoral Studies, September 2013). Then, I met in the hall a Greek colleague, Byron Matarangas, who is a guest academic at Bahçeşehir University. He reminded me of the saga of the economist and late Prime Minister of Greece Andreas Papandreou (the father of Georgios Papandreou) at the end of the 1980s.
Let's begin with the article in Electoral Studies, which used a novel design for two original survey experiments in Sweden, considered a “low corruption” country as it is ranked third on Transparency International's Corruption Perceptions Index, and Moldova, a “high corruption” country ranked 102 among 177 countries on the same index. What are his findings? I quote from the article. “First, there is indeed an interactive effect between economic conditions and corruption in our low corruption country (Moldova): when economic conditions are poor, incumbents are punished for corrupt behavior. However, when economic conditions are better, the effect of corruption is significantly diminished. In Sweden, on the other hand, corruption is always punished by voters regardless of the state of the economy. Moreover, Swedish voters react more strongly to prompts regarding corruption than do Moldovan voters.”
Andreas Papandreou, founder of the Panhellenic Socialist Movement (PASOK), faced a graft probe scandal at the end of the 1980s. A 35-year-old young man, George Koskotas, who had been living in the US, returned to Greece. Although he was not known as a wealthy fellow, he bought a small bank, the Bank of Crete. He then bought -- with the bank's money -- two newspapers having financial problems and shut them down. Coincidentally, these newspapers were known as fierce opponents of PASOK. However, Mr. Koskotas was not satisfied with this coup.
His next step was to purchase Kathimerini, an influential newspaper that was also in financial distress. This was too much, and the Greek media started shouting of a scandal. An investigation was opened; Koskotas flew to Brazil in a private jet. While abroad, he claimed that Papandreou had ordered state companies to deposit funds into the Bank of Crete and had taken bribes of stolen money. Meanwhile, Papandreou alleged that local collaborators were part of an international plot aiming to overthrow him.
Koskotas was later forced to return to Greece, where he was tried and sentenced to 25 years in prison. PASOK lost the general elections in 1989, won by a coalition between the New Democracy Party and the Communist Party. Three ex-ministers of PASOK have been tried and sentenced for helping Koskotas in his dubious affairs, including his escape to Brazil. It is still unknown how Mr. Papandreou escaped trial. One can only note that President Konstantinos Karamanlis declared it would better that Papandreou go back home than to prison. Out of curiosity, I checked the International Monetary Fund (IMF) database: The Greek economy grew 4.3 percent in 1988 and 3.8 percent in 1989.
I have to note that one cannot know if, at that time, a love story between Mr. Papandreou and a jolly flight attendant for Olympic Airways, Dimitra Liani, who became his second wife after he divorced, also played a role in this electoral defeat. Either way, we do not have such a factor in our case.
So, I will leave it to you to guess the elections results for the incumbent party on March 30, keeping in mind that Turkey ranked 55th on the 2013 Corruption Perceptions Index, midway between Sweden and Moldova, and that the damage to the Turkish economy until this time will probably be limited but felt to some extent.