The evaluation of reflections of changes in the value of euro on the Turkish economy from the perspective of European Union membership

With growing volumes of international trade and capital movement as the result of the process so-called globalization, the foreign exchange and currency parities have gained further importance. As the effects of this process becomes more discernible, the exchanges rate policies require utmost diligence to be implemented. It is observed that mismanagement of the process and consequently crises have led to severe economic, social and political problems in many countries. Hence, studies relating to exchange rates have recently gained a considerable momentum. The mutual interaction between exchange rate and economic variables and compensotary mechanism renders the issue regarding the factors and ways exchange rates are being determined as vital as the issue how they influences overall economic activities. At this point, one should underline that exchange rates, which are in constant interaction with large number of global, regional and local variables thereby assuming a decisive role in connecting local economy with the world, have crucial importance for the Turkish economy too. Exchange rates are particularly more important for Turkey, a candidate country for the membership in EU, for they are currently so decisive on Turkey's domestic economic performance, and moreover, they are very likely to influence the course of this country's integration into the Economic and Monetary Union (EMU) in the days to come. EMU aims at integrating the national economies in Europe and it is considered a milestone in the path leading to political integration as the ultimate goal. It involves a transition from an international fixed exchange rate system between national currencies to a supranational system characterized by a single currency under the control of a common central bank as well as the free movement of factors of production. The decades-long process of economic integration has culminated in a peculiar practice of monetary integration among the member countries with different economic structures and fiscal policies. Consequently, EU has reinforced its location and economic influence in the global economy and Euro by turning out the second most decisive currency following the US dollar in global scale, has managed to reshuffle the global financial system into a kind of bipolar structure. In this study, primarily the factors that play important roles in the changes in the value of exhange rate, which is one of the most important indicators of macroeconomic performance, and the impacts of those involved changes are being analyzed. Then, the exchange rate system that resulted in Euro and the processes through which Euro influenced the dynamics both in the Eurozone and global economics are being handled by their respective historical phases. Lastly, by taking into account the dominancy of US Dollar in the international monetary system, the impacts of changes in the value of Euro on the Turkish economy is being elaborated under the light of the relevant statistical data. In this context, this study analyzes the possible risks Turkey's accession/or pre-accession to the Eurozone may create and concludes that Turkey is highly vulnerable to the economic and social risks its membership both in EU and the Eurozone may generate because of the deficiencies that its current economic structure exposes. Keywords: Exchange Rate Theories, International Monetary Integration, Euro Area, Real Exchange Rate, Value of Euro, Turkish Economy.