Turkey began formal membership talks in 2005 after years of foot-dragging by some EU member states such as France who were wary of admitting such a large Muslim country
Ankara (AFP) - Turkey moved quickly to quell financial market concerns over political instability after the coup against President Recep Tayyip Erdogan's government, although the putsch created new economic risks that will be tougher to banish.
Global financial exchange markets were still open when the coup erupted late Friday and fears of prolonged political turmoil in a key emerging market prompted a five-percent crash in the lira against the dollar.
When markets reopened on Monday, investors had taken some reassurance from the rapid collapse of the coup and swift moves by the government to insist that financial stability would not be compromised.
The lira gained 1.4 percent against the dollar to trade at 2.975 to the greenback, recouping some but not all of its losses.
The Istanbul stock market, which was closed at the time of the coup and had yet to price in the fact of the coup, endured a bloodier day.
It has fallen 8.86 percent to trade at 75,484.63 points.
"Turkey's fundamentals are healthy. There is no need for panic. Turkey's stability has been strengthened," Finance Minister Mehmet Simsek told the Hurriyet daily.
The central bank, nominally independent from the government, also reacted quickly, crucially vowing to provide banks with unlimited liquidity.
"All measures will be taken to ensure financial stability, if deemed necessary," it added in a statement.
The central bank on Tuesday has a chance to inject more confidence into markets when its monetary policy committee meets to decide on interest rates.
Prime Minister Binali Yidirim said in Ankara that Turkey's financial system was "in perfect order" on Monday, emphasising the central bank had been prepared to take "every precaution".
Referring to the sharp fall in stock market on Monday, he said "there are changes but it is no different to some other normal days".
"Life is back to normal — this is the message to the market," he said.
- 'Political risk' -
Analysts said the government was well aware of the potential risks to an economy which had already shown signs of fragility this year.
"Once the dust settles, we might see more actions, but we sense that the main aim of the government is go back to normal," said Ozgur Altug of BGC partners in Istanbul.
He said the central bank would not need to use all the liquidity tools it had promised "as there is no need".
But William Jackson, economist at Capital Economics in London, said that for all the government's assurances and the lira's bounce, "the economy is likely to suffer a period of slower growth, and the lira will remain under pressure."
"It seems clear that political risk within Turkey has been consistently underestimated."
Meanwhile, the possibility that Erdogan will take the chance to further centralise his powers after the coup could further limit growth amid worries in the markets over the risks of one-man-rule.
Standard and Poor's, which assesses Turkey as a moderately high-risk country, said it would give its assessment on the consequences of the coup in the next days.
Fitch Ratings said the coup bid highlighted the political risks to the ratings on Turkey's ability to pay back its sovereign debts.
"Whether this translates into sovereign ratings pressure will depend on the extent to which the government's reaction deepens political divisions and weakens institutional independence," it said.
- Volatile growth path -
Turkey's economy has already endured rough times this year, with repeated terror attacks in Istanbul and the capital Ankara as well as a crisis in Russia causing a sharp fall in its key tourism market.
But helped by low energy prices, Turkish officials had been quick to point to the robustness of growth in the country, which was a decent 4.0 percent in 2015 and 4.8 percent in the first quarter.
Jackson said the first economic victim of the coup will be household and business confidence, which will lead at the very least to people delaying spending and thus reduce growth.
Turkey is hugely vulnerable to such shocks -- because of its notoriously low savings rate, it has to rely on capital from abroad to finance investment.
"The current direction of Turkish politics implies a slower and more volatile growth path," said Jackson.