Market Pressures, Membership Conditionality, and EU Accession: Turkey’s Convergence Tale Iain Hardie School of Social and Political Studies University of Edinburgh
[email protected] Layna Mosley Dept. of Political Science University of North Carolina
[email protected] January 2007 Abstract: This article investigates the incentives for policy changes generated by the prospect of European Union (EU) accession. Specifically, we focus on the role played by private investors in the exercise of membership conditionality by international institutions. Focusing on the case of Turkey, we argue that, even though accession is a distant and uncertain prospect, bond market actors already have begun to reward the Turkish government for its moves toward membership. As such, these actors reinforce the EU’s use of membership conditionality, in which accession governments pursue a variety of policy changes in order to improve their membership prospects. We identify several important trends in the market for Turkish bonds; in general, foreign investors have increased their investments in Turkish public debt. As a result, the Turkish government benefits from reduced borrowing costs and a longer term perspective on the part of investors. We discuss the implications of bond market behavior vis-à-vis Turkey, in terms of its implications regarding the joint importance of international institutions and private markets as influences on governments’ behavior, and in terms of the consequences for Turkey, both in the short-run (positive) and in the long run (depending on the outcome of EU accession negotiations, positive or negative). For comments on previous versions, we thank Mark Aspinwall, James Clunie, Roland Dannreuther, Liesbet Hooghe, David Howarth, Erik Jones, and John Peterson.