Turkish Prime Minister Recep Erdogan has refused to back down over redevelopment plans for Taksim Square.
This was another blow to the financial markets in Turkey with investors uneasy with the uncertainty and conflict following clashes between police and public all over the mainland.
The stock market fell again yesterday and is now 20% below its recent highs; this is the classic definition of a bear market.
The hundreds of billions of short term loans which have been attracted to Turkey with its relatively high interest rates can leave the country just as easily.
Hugely ambitious construction projects depend on this external financing. Planners envision a third bridge spanning the Bosporus at a cost of $3 billion, for which ground has already been broken; $10 billion to be spent on a third airport, which would be the world’s largest; and a $2 billion outlay to create a financial centre in Istanbul to compete with Dubai and London.
This hot money is nervous and if it leaves Turkey in large amounts, the currency will weaken even further.
As forecast here in the finance blog, the TL was predicted to weaken all the way to TL 2.97 against sterling. Last night the lira closed at TL 2.92.