The Turkish political scene has been rocked by accusations of corruption since December 2013, when a number of people, including government officials and private citizens close to Prime Minister Recep Tayyip Erdoğan, were arrested as part of a crackdown on graft. Meanwhile, the Erdoğan-led government is enacting policies that degrade rule of law in the country, with sudden policy shifts in the judiciary and the intelligence service, as well as an ongoing clampdown on media and individual freedoms.

The government’s response to the accusations of corruption has been so severe that it has been seen as an attempt to cover up unpleasant realities. Ultimately, it is the sign of a fierce battle that Prime Minister Erdoğan is waging to retain his power. The crisis is likely to deepen in the run-up to critical elections in 2014—local elections in March and a presidential vote in August.

But the implications of this crisis reach beyond ballot-box politics. Turkey’s domestic tumult is threatening the country’s economic and international interests. After twelve years of unprecedented political stability and economic progress, new political uncertainties have led to a deterioration in the country’s financial ranking and currency and have dented Turkey’s international standing. The frequent allegations and momentous revelations of corruption have added uncertainty to the politics and economics of a country that had become a symbol of progress to many observers.

With a deepening of the crisis likely unavoidable, the citizens of Turkey are not the only ones at risk. External players, first and foremost the European Union, have much to worry about, too.

Possible Futures on the Home Front

In domestic political terms, there are several possible paths Turkey could follow. In the first scenario, Prime Minister Erdoğan becomes Turkey’s next president in August’s election. If that happens, he will have the same limited powers as the current president, Abdullah Gül—but with major differences.

The new president will be the first to be directly elected, so he will have an extra layer of legitimacy. Given Prime Minister Erdoğan’s personality, he will likely bring his forceful, vocal political style to the presidency. Recep Tayyip Erdoğan will almost certainly use some of the powers that Abdullah Gül has refrained from using, for example chairing weekly meetings of the Turkish cabinet, which will allow him to micromanage the government’s affairs. And, logically, to achieve that aim, President Erdoğan is bound to choose an obedient prime minister.

In the second scenario, for his own reasons, Prime Minister Erdoğan decides not to run for president, and President Gül is reelected in a landslide victory. Ultimately, that could benefit the ruling Justice and Development Party (AKP), as it might help the party remain united. Under this scenario, Prime Minister Erdoğan’s political fortunes will rest on the next legislative elections, slated for June 2015 unless they are moved up. If reelected prime minister—possible only if the AKP changes its internal rules—Recep Tayyip Erdoğan could well continue his recent authoritarian policies, in particular dismantling the country’s rule-of-law architecture. But his prestige would be irreparably dented.

More remote is the possibility that the popular discontent that was on display in the 2013 Gezi Park protests could combine with reactions to an ongoing corruption investigation involving key members of the Turkish government to produce a schism within the AKP between a more liberal and an ultraconservative and nationalist faction. Depending on the results of March’s municipal elections—which have become a nationwide test of the AKP—such a political earthquake could occur before or after August’s presidential election. However, there are currently no signs that this is anywhere close to becoming a reality.

The Turkish and international media are rife with scenarios and predictions. Yet every opinion poll published in recent weeks has shown Prime Minister Erdoğan’s party retaining its first place nationwide. There is virtually no scenario that predicts a crushing defeat for the prime minister in the forthcoming elections. What really matters will be the national margin between the ruling party and the main opposition party and the AKP’s potential loss of the major urban municipalities of Istanbul and Ankara.

International Estrangement

Results aside, Recep Tayyip Erdoğan’s electioneering is having a wide-ranging impact, and the current political crisis has dented Turkey’s standing in the world. In the Middle East, Turkey has moved from being held up as a model to a position of quasi-irrelevance in a number of countries, such as Egypt, Iraq, and Syria, at least for the time being. But it is perhaps with the European Union that the fallout from the current political crisis could have the harshest consequences.

The relationship with the EU is based on criteria that Turkey must meet to gain accession to the union. It consists primarily of aligning Turkey’s rule-of-law architecture with the EU’s. Progress made since 2005 has been insufficient but nevertheless real. But now, the rule of law in Turkey is being dismantled for purely electoral reasons.

Since December 17, 2013, when Turkish police made a series of high-profile arrests as part of a corruption probe, a systematic process of reversal has begun. Legal advances that further the rule of law have been undone, the separation of powers has been blurred, and already-fragile media freedoms have been dented further.

Recent examples are many. The High Council of Judges and Prosecutors, which deals with appointments and promotions, has been put under the de facto authority of the minister of justice, while the judicial police was brought under the control of the police instead of prosecutors. The media no longer have access to police facilities, and a foreign journalist was expelled for criticizing the prime minister on Twitter. A highly discretionary new law that, among other things, requires Internet service providers to make web user data available to the authorities was passed in a hurry in parliament and immediately approved by the president, despite widespread criticism to which the president felt compelled to respond. A draft law giving sweeping powers to the national intelligence service is under discussion. Medical doctors now have to request police permission to tend to people injured in public demonstrations.

As a result of such a massive deterioration of the rule of law, international interest is waning. The EU and the United States are highly concerned. The Turkish government’s dual narrative on the issue—pretending everything is perfect while scrapping many of the basic rules—has ended up tiring Turkey’s most enthusiastic friends in European governments and parliaments, including the European Parliament. After all, if European leaders and parliamentarians are constantly tossed back and forth by the Turkish government’s adverse statements and proclamations of strategic interest, why should they risk appearing naively supportive of a volatile country at a time when Europe’s own public has become inward-looking? More generally, the government’s argument—put forward for more than a decade—depicting Turkey as a strategic addition to the EU has now largely vanished.

The EU—and the United States as well—has said clearly that it has no interest in the government’s justifications of these measures. Prime Minister Erdoğan has defended the steps as necessary to thwart “international conspirators” working together with a “state within the state”—that is, the Fetullah Gülen community, not a political party, but an influential religious sect whose ideas are not necessarily EU-compatible. The government’s narrative that the EU understands why these steps are being taken does not reflect the reality. The frank and robust exchange between Prime Minister Erdoğan and the leaders of all the political groups in the European Parliament in Brussels on January 21 is a testament to this situation.

Technically, as things stand now, it can be argued that the country no longer sufficiently fulfills the political criteria of the EU accession process. It remains to be seen how the European Commission will play its cards when issuing its next annual progress report on Turkey in October 2014. Prior to this, in March or April, the outgoing European Parliament will adopt its own annual resolution on Turkey, which is widely expected to be strongly critical of Ankara.

On several occasions in recent weeks, Turkey’s new EU minister, Mevlüt Çavuşoğlu, signaled that the government intends to continue with its current legislative proposals, even if they are contrary to EU standards. He said that Turkey is an “independent state” that is contemplating no more than “an exchange of views” with the EU. This amounts to tearing apart the mutually agreed “negotiating framework” that governs the process of aligning Turkish legislation with that of the EU—the very core of the accession negotiations.

Worries have surfaced about the predictability of Turkey’s foreign policy course in other areas as well. For example, the Turkish government announced that it has agreed in principle to purchase a Chinese missile defense system that is blatantly incompatible with Turkey’s commitments as a member of NATO. Turkey has long pursued an “open-door policy” along its border with Syria, allowing jihadists fighting in the Syrian civil war to come and go at will. And it is hard to predict what course Turkey will choose to settle its differences with Israel and Armenia or to support the reunification of Cyprus.

In an ideal world, it is not difficult to sketch out the moves Turkey would need to make to construct a NATO-compliant missile defense system, settle its differences with Israel, restart a dialogue with Armenia, or push for a UN-sponsored deal to reunify Cyprus. But in practice, none of these moves is likely to offer electoral kudos for a prime minister who has opted for a narrative based on conspiracy theories. The recurrent anti-Israeli, anti-Semitic discourse adopted by the highest levels of the Turkish government has created permanent irritation in Washington and elsewhere.

Economic Blowback

But it is in the economic arena where the prime minister’s heavy-handed tactical inclinations in view of the forthcoming elections are most clearly taking precedence over international considerations. Moves on the home front are completely and utterly at odds with the country’s international interests. In fact, the two approaches are mutually exclusive.

The economic consequences of the political crisis have already been felt in a drastic way. The Turkish lira has depreciated significantly, ratings agencies have become more cautious, and there are fears of a slowdown in foreign direct investment. When the Turkish Central Bank decided on January 28 to raise interest rates, the prime minister claimed he had “alternative plans” if the hike failed to stem the lira’s recent losses. That fueled panic among bankers and investors: What if the prime minister places the central bank under government control or introduces restrictions to capital flows?

Undoubtedly, such measures, coupled with the sharply deteriorating state of the rule of law, would badly dent Turkey’s image as an investment-friendly country, with immensely negative consequences on foreign direct investment flows and perhaps even on domestic politics. The mere fact that such steps have been mentioned at the highest level of government is in itself hurting the Turkish lira and the country’s standing.

Prime Minister Erdoğan’s actions and the subsequent blowback are causing a significant rift between the government and powerful business elites. One of the most potent symbols of the new Turkey that has emerged under AKP rule is a sizable conservative business class often dubbed the “Anatolian Tigers,” a cluster of companies active in the construction sector as well as in the energy and manufacturing sectors. These firms’ fortunes depend on alliances with foreign businesses, on borrowed hard currencies, and on Turkey’s standing in international markets. They also rely on a stable lira and on government support for their new foreign ventures.

The current crisis is wreaking havoc for this segment of the conservative establishment. It was striking that, in July 2013, when the government unleashed its ire against a large secularist industrial conglomerate by carrying out fiscal inspections and canceling contracts for purely political reasons, it was a prominent voice of the conservative business establishment that came to the rescue. No surprise there: no businessman likes unpredictability or discretionary moves from the government.

In a country like Turkey—so heavily dependent on its international connections for trade, investment, research and technology, and education and security—a sharp deterioration in relations with partner countries is not a benign occurrence. Rather, it is a cause for serious concern, especially in view of the lack of alternatives.

Even a cursory analysis of Turkey’s imports and exports, short-term finance and foreign direct investment, technology inputs, or education partnerships reveals how much the country depends on its strong connections with the EU and, to a lesser extent, the United States. Economists in the Turkish government are acutely aware of these fundamentals. Yet, they have to toe the party line.

Given the drastic deterioration of the rule of law, there is a distinct risk that Turkey could go from being a land of opportunity for European investors to a country where they think twice before investing. Turkey retains many attractive assets: a young and dynamic population, competitive cost factors, a strategic geographical location, and a modern infrastructure. Yet with the courts under the government’s rein, the Internet under strict surveillance, a vastly reinforced intelligence service, an inconsistent narrative on the central bank, a muzzled media, and the worsening situation of individual liberties, Turkey is quickly becoming a hard sell on international markets.

What Next?

Against this rather gloomy background, one wonders what future lies ahead for ordinary citizens in Turkey. They may have benefited from the country’s economic progress in recent years in the form of better highways, airports, and hospitals. But now they are worried about their economic future, the value of their currency, their individual rights, and, more importantly, harmony within their diverse society. The notion sometimes found in the press that the AKP’s core electorate values only material progress, accepts corruption as normal, and buys into conspiracy theories is not a reflection of the electorate’s wisdom.

At the same time, voters have a long historical memory. They remember the 1970s and 1980s, decades of recurrent military coups, permanent high-double-digit inflation, ephemeral political coalitions, political assassinations, and corruption scandals. For many Turks, twelve years of AKP rule has meant stability, prosperity, and, simply, a better life.

If AKP supporters see twelve years of success being wrecked by political feuds and massive corruption cases, will they start to shift their political allegiance? Prime Minister Erdoğan is betting on a negative answer to this question in Turkey’s upcoming elections. That explains his determination to stop the ongoing corruption inquiries at all costs. In such a context, the almighty battle between the AKP and the Gülen movement might not be voters’ central focus. They are probably more attached to political stability and economic prosperity than anything else.

From a foreign observer’s point of view, it is striking that the corruption revelations were obtained through phone intercepts outside the law, while the government’s response was to quickly change the relevant legal framework and shift thousands of officials to other positions.

The visible trends on the Turkish political scene point to further degradation of the rule of law; greater controls on the judiciary, the press, and the citizens at large; more worries from financial circles; and a widening gap with EU standards. The artificial way the current crisis has been engineered makes it difficult to reconcile Turkey’s domestic political games with its global interests, particularly vis-à-vis the EU.

There is a chance that the European Union will decide to call a spade a spade and, according to the accession negotiations’ ground rules, state that Turkey’s dismantling of fundamental freedoms, elimination of almost all key components of the separation of power, and authoritarian tendencies are not EU-compatible. As a result, the EU could suspend accession negotiations at the end of 2014 until the rule of law is restored. That would be the most logical scenario under the mutually agreed rules of the accession process.

But Turkey is perhaps counting on realpolitik to carry the day. Ankara may assume that EU member states have enough economic interests in Turkey to decide to weather the storm, while leaving the heavy political lifting to the European Commission and the European Parliament. In short, EU countries could wait for better times, see what comes out of the elections, and keep doing business. That would preserve the economic interests of individual member states while letting Turkey’s politicians bring an end to their infighting. This is perhaps a more likely scenario, considering that Turkey is also involved in a host of other sensitive issues in the region, such as those related to Cyprus, Syria, Iraq, and Armenia—not to mention its relations with Israel.

But this does not give any assurance that Turkey will come back to a rule-of-law architecture resembling that of Western countries. It may well be that Turkey will have irreversibly slid toward the “Russia model.” In addition, there is another consideration on European minds: jettisoning the accession negotiations now may well reinforce Prime Minister Erdoğan’s authoritarian inclinations and leave Turkey’s liberals in the cold, leading to a more polarized and unpredictable country.

In the short term, muddling through may well be the most convenient way out for both Turkey and Europe. After all, in foreign policy, the worst outcome is not always a certainty. One thing is certain, however: It has taken Turkey over a decade to build stability, economic success, and diplomatic respectability. It has taken only a few weeks in 2013 and 2014 to shatter that hard-earned image. Climbing out of the hole again will be long and painful.