US embassy cable - 05ANKARA2975

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 002975 
 
SIPDIS 
 
TREASURY FOR INTERNATIONAL AFFAIRS - MMILLS AND CPLANTIER 
NSC FOR BRYZA AND MCKIBBEN 
 
E.O. 12958: DECL: 05/24/2010 
TAGS: PREL, PGOV, ECIN, ECON, EFIN, TU 
SUBJECT: BABACAN NAMED TURKEY'S EU NEGOTIATOR 
 
 
Classified By: Ambassador Eric S. Edelman for reasons 1.4(b) and (d). 
 
1. (C) Summary: Prime Minister Erdogan announced that 
Minister of Economy Ali Babacan will be Turkey's EU 
negotiator.  Although Babacan is among the most 
internationally-savvy Ministers, having long experience 
dealing with the IMF and the international financial 
community, some observers believe he lacks the political 
clout that will be needed to push through EU-mandated 
reforms.  The long-awaited announcement raises as many 
questions as it answers: will Babacan report through FonMin 
Gul? 
Will  Babacan really remain responsible for economic 
policy as well as EU negotiations and, if so, how will that 
work? 
 Moreover, with a political mood in the EU increasingly 
inhospitable to Turkey's EU candidacy and resurgent 
nationalism and buyer's remorse toward the EU in Turkey, 
Babacan has his work cut out for him.  End Summary. 
 
Babacan Named EU Negotiator: 
--------------------------- 
 
2. (C) On May 24, Prime Minister Erdogan announced that 
State Minister Ali Babacan would be the lead negotiator for 
Turkey's EU accession negotiations.  The announcement was 
long overdue, given that the December 17 EU summit set a 
date for Turkey's accession negotiations, and most observers 
expected the GOT to quickly name a negotiator to 
begin preparations.  Instead, during the ensuing five months, 
the GOT seemed paralyzed, with constant rumors of a 
cabinet reshuffle, and few significant decisions taken except 
those needed to get a new IMF program approved. 
(Even those took four months and only happened when markets 
scared 
the GOT with a correction.)  The GOT seems to have 
(willfully) misinterpreted EU officials' private advice that 
Turkish leaders keep relatively quiet on EU issues 
until after the French and Dutch referenda in order not to 
risk 
stirring up anti-Turkish sentiment in the referendum 
countries.  The GOT seems to have disingenuously interpreted 
this advice to mean Turkey should do nothing, not even name a 
negotiator and prepare for the October accession talks. 
 
3. (C) Babacan's name had long been rumored to be among the 
leading candidates.  In a thin field, Babacan has proven to 
be 
among the more internationally-oriented and savvy ministers 
in the AK Party government.  A former Fulbrighter with an 
MBA from Northwestern University, Babacan, along with 
Foreign Minister Gul, is one of the few ministers who 
is comfortable holding meetings in English.  Though 
his ever-optimistic, and sometimes blatantly-misleading, 
public statements have undermined his credibility 
with financial markets, over time he has proved himself 
as one of the few ministers who truly "owns" the economic 
reform program, and has at times clashed with other 
ministers, including Prime Minister Erdogan, to push 
through the minimum the IMF can accept. 
 
4. (C) The pattern with the IMF, however, reflects 
Babacan's major weakness: he lacks political clout.  With 
the EU acquis requiring across-the-board changes in Turkish 
institutions and laws--far more intrusive changes than the 
IMF program requires and affecting all ministerial 
portfolios--Babacan's track record inspires little confidence 
that he will be able to convince the Cabinet to conform to 
the EU's requirements. 
 
In the Dark Until the Last Minute: 
--------------------------------- 
 
5. (C) Babacan had privately denied he was going to be 
tapped to be EU negotiator.  Indeed, the night before the 
announcement, he again told the Ambassador he was not 
going to be named EU negotiator and did not want the job. 
Some press have also reported Babacan was not told in advance. 
Had he known he was about to be named, it seems unlikely he 
would have been as explicit in his denials.  This adds to 
other evidence of Prime Minister Erdogan's and the GOT's 
disorganized, last-minute management style, as well as 
Babacan,s 
outsider status. 
 
Who Will Mind the Economic Store? 
-------------------------------- 
 
6. (C) The announcement raises multiple questions, and has 
revived once again rumors of the imminent cabinet reshuffle 
(that never seems to happen).  What will Babacan's exact 
responsibilities and reporting lines be?  Though the Prime 
Minister announced he would retain his rank of State Minister 
and Babacan,s Chief of Staff confirmed to us press reports 
that Babacan will retain his economic portfolio, we do not 
see how Babacan could effectively handle both 
responsibilities. 
It is not yet clear whether Babacan will report to Erdogan 
through Deputy PM and FonMin Gul on EU issues.  If, as is 
more likely, he is eventually replaced on the economic 
portfolio, 
the leading candidates would probably be even less effective 
than 
Babacan.  Central Bank Governor Serdengecti has told us that 
Babacan is the only minister who seems to understand the 
need for sustained reforms. 
 
7. (C) There are rumors that Nazim Ekrem, who currently 
chairs the AK Party Economic committee, would replace him. 
The introverted Ekrem, though an economics professor, is not 
fluent in English and is not as smooth as Babacan.  His 
policy 
instincts are nominally market oriented but untested in 
a serious policy-making environment.  He lacks political 
clout.  The other economic heavyweights in 
the cabinet, Finance Minister Unakitan and Deputy Prime 
Minister Sener, lack Babacan's willingness to accept 
economic reforms.  Both have recently demonstrated this: 
Sener with his public statements that foreign bank 
ownership should be limited; and Unakitan shrugging off 
potential IMF concerns about a briefly floated GOT proposal 
for and amnesty for delinquent Social Security premia 
despite the amnesty's apparent contravention of the 
just-signed Letter of Intent.  In both 
Sener and Unakitan's cases, there have been other, earlier 
indications that they at heart they are not economic 
reformers. 
 
Pushing the Panic Button? 
------------------------ 
 
8. (C) The timing of the Prime Minister,s announcement, 
apparently without having informed Babacan, suggests the 
GOT moved precipitously to counter the increasingly 
negative news flow on the prospects for Turkey,s EU 
candidacy 
with what was likely to be considered a market-friendly 
announcement.  The morning of the announcement, the 
newspapers 
were full of Prime Minister Schroeder's call for early 
elections, 
raising concerns that a CDU  government might take power in 
Germany 
that will oppose Turkey's EU candidacy.  Combined with the 
polls suggesting both French and Dutch voters may vote no 
in next week's referenda on the EU constitution, 
Turkey's EU accession prospects are looking considerably 
dimmer than they did before.  Adding to the gloom was the 
biggest local economic story: Cukurova Group's 
surprise termination of its deal to sell its shares in 
Turkcell 
to the Nordic group Telia Sonera.  This had been 
considered a flagship deal in terms of bolstering Turkey's 
very 
weak track record in attracting foreign investment. 
Not surprisingly, already worried markets sold off on May 23, 
as 
these stories broke, with the Istanbul stock 
exchange down 4.66 percent on the day. Folowing the 
announcement 
about Babacan on May 24, the markets rallied momentarily 
before 
continuing their sell-off. However most of the business 
community,s comments on the Babacan appointment have been 
positive. 
The sell-off may not be over, however: if the polls are 
correct, 
and the French vote no, Turkish markets are likely to decline 
further. 
 
Erdogan's Calculation: 
--------------------- 
 
9. (C) In terms of internal politics, Erdogan appears to be 
calculating that, by appointing a Gul protege, he weakens his 
biggest rival  Gul's hand, since Babacan's political 
prospects 
-- and value as a Gul ally -- will erode quickly as he is 
obliged 
to sell tough EU views and demands to the Cabinet and 
public.  In this regard, and given Erdogan's visibly 
dismissive 
attitude toward Babacan, the appointment serves Erdogan's 
internal political struggle with Gul.  In any event, with 
minimal clout in the Cabinet, and having made no secret 
that he was trying to avoid the assignment, Babacan faces a 
grueling and lonely road ahead. 
 
A Herculean Task: 
----------------- 
 
10. (C) Babacan will have his work cut out for him. Not only 
has Turkey lagged in preparing for its EU accession 
negotiations, with only a few months before they begin, 
neither the mood in the EU nor the mood in Turkey are 
conducive to a good start to negotiations.  It will be a 
Herculean achievement if Babacan is able to negotiate 
between the Scylla of anti-Turkish sentiment in the EU, and 
the Charybdis of resurgent anti-western xenophobia in 
Turkey.  At the same time, his attention to IMF issues will, 
at the very least, be diverted. 
 
EDELMAN