The world has been facing interesting developments. The state of affairs in Greece is of greater importance for Turkey. It will be useful to discuss under which circumstances the state of affairs in Greece leads to another financial crisis. We can name two specific conditions which are not independent from but can trigger each other. The first condition is as follows: the bonds Greece issued to finance budget deficit have lost value significantly due to the rising credit risk. Therefore, banks holding these bonds have faced losses manifested in the fall of the value of their assets. But how important is this?

Given the advanced state of European banking sector is considered, we cannot expect that the loss in the value of Greece's bonds highly affects European banks. But the problem is that European banks were already wounded significantly by the global financial crisis. If the marks of the wound on the balance sheet of the banking sector did not sufficiently disappear, the developments in Greece can be triggering. But I do not know how serious this possibility is; we have to rely on the experts of the issue. However, they do not go far from pointing to this possibility.

The second condition is related with the fact that Portugal and Spain also encounter problems. Spain, different from the other two, has a large economy. If the developments in Greece even deepen the problems of Portugal and Spain and transmitted further to other weakest links, European banking sector can come to see rainy days.

I believe that these two conditions are not much likely to be realized. The main reason for this belief is that the current state of affairs Greece is faced with is not impossible to overcome. We can reach to this conclusion by comparing the current state of affairs in Greece with the conditions Turkey was faced with right after the 2001 crisis.

Back then, Turkey's budget deficit was much higher than Greece's. Banking sector was at the edge of the cliff.  Credit risk was much higher. The only advantageous factor for Turkey was that public sector debt was lower than that in Greece now.

However, Turkey's weaknesses were much severer. Value of lira was quite low and we were vulnerable towards speculative attacks depreciating it further. Central Bank lost credibility due to the collapse of exchange rate regime. Exchange rate rising as a result of speculative attacks furthered public debt and elevated FX denominated debts of banking and corporate sector. On the other hand, Greece is in Eurozone; monetary policy is regulated by the European Central Bank, which is highly credible.

In this context, if we successfully overcome a much severer crisis with the Stability Program introduced in May 2001, Greece also can even more easily relying on the advantage of being in the Eurozone and having a strong and credible central bank.

Nonetheless, the likeliness to overcome the crisis does not necessarily imply that the crisis will be overcome. To secure this the Greek society should make considerable effort. The country also needs external support. There is nothing to say about the making effort issue. But receiving foreign support will not be a challenge for Greece. This is what the IMF serves for. A deal with the IMF along with a serious program not only saves Greece out of trouble but also eliminates the abovementioned risks. If the EU does not desire IMF intervention, then the EU itself take an action. And this is where the issue gets more complicated; because if you save a country which spent irresponsibly for years in order to enjoy more possibilities that the conditions allowed implies that other countries can also act irresponsibly. This is actually the main reason why the EU leaders have hummed and hawed during the meetings in the last week. I will talk on this issue a bit further.

This commentary was published in Radikal daily on 15.02.2010