Turkey on the Path to Autocracy

Is the government following a power logic or an economic logic?

The arrests and the ensuing wave of pro­tests have also had a significant impact on the domestic economy. The stock market has plummeted, the value of the Turkish lira has decreased significantly and billions in foreign currency have been injected into the foreign exchange market in a bid to stabilise the national currency. This raises the question of why President Erdoğan has allowed criminal investigations and pro­ceedings to be initiated against İmamoğlu and other CHP mayors at a time when there are still more than three years until the next presidential election.

There are two possible answers to that question – one related to geopolitics and the other to the political situation in Tur­key itself. The geopolitical reading points to Turkey’s enhanced strategic importance owing to tensions between the United States and the EU, its support for Ukraine in Rus­sia’s war of aggression against that country and the influence it wields in Syria. Presi­dent Erdoğan is believed to have counted on a restrained response from the US gov­ernment and the EU to the suppression of the Turkish opposition by judicial means.

The domestic political reading is that Erdoğan opted for a confrontational stance towards the opposition because of the erosion of both his power and that of his government. In early March, President Erdoğan was significantly trailing behind İmamoğlu and Mansur Yavaş, the CHP mayor of Ankara, in the opinion polls, while his Justice and Development Party (AKP) has ceased to be the strongest political force in Turkey. This suggests the legal pro­ceedings against the mayor of Istanbul can be seen as an attempt to divide the CHP and the DEM and weaken the opposition. In­deed, the heavy police presence and restric­tions on the right to assembly in Istanbul – and, to some extent, in other cities as well – only reinforce the impression that there is a deliberate attempt under way to intimidate the opposition.

To fully understand the motives behind Erdoğan’s strategy, it is necessary to analyse the economic background. A solely power-political perspective falls short of explaining the president’s actions and must be complemented by an analysis that takes into account the economic interests and constraints shaping the measures taken by Erdoğan.

The economic importance of CHP-led municipalities

Following the 2024 local elections, the CHP became the strongest political force in the country as well as a significant economic factor. For the past year, the party has governed 14 metropolitan municipalities, 21 provincial capitals, 337 districts and 61 towns. Combined, these CHP-led municipalities are home to 62 per cent of the popu­lation, generate 73.4 per cent of GDP, hold 84.5 per cent of total private savings and account for 79.6 per cent of Turkey’s total exports. Moreover, the average per capita income of CHP-governed municipalities exceeds that of those governed by the AKP.

This has given the CHP a strategic advantage through which it is able to exercise a decisive influence on the national eco­nomic cycle and thereby establish an alter­native sphere of power. The CHP-led muni­ci­palities are able to commission infrastructure projects of significant value and have thus become not only clients for businesses but also major customers in wholesale trade and the employers of several hundred thousand workers. As a result, entrepre­neurs and construction companies, among others, no longer need to depend solely on contracts from the central government, which allows them to be more assertive in their dealings with President Erdoğan and his government. Some entrepreneurs have already turned their backs to some extent on the president and his government. And this new economic power of the CHP is particularly important insofar as high in­terest rates on loans have served as a brake on investments and orders in the construc­tion sector for almost two years now.

The economic significance of the İstan­bul Metropolitan Municipality can hardly be overestimated. Under the AKP from 1995 to 2019, the municipality received revenues totalling US$85 billion from 130 major devel­opment projects. The loss of İstanbul in 2019 meant the loss of a central eco­nomic lever and what was, financially, a cru­cial “lifeline” for the AKP, the absence of which is still clearly felt in the current time of financial constraint. This explains why the Erdoğan government is determined to recapture the metropolis through judicial measures and, if necessary, will ensure con­trol over the city by putting it under the administration of the state.

The municipalities governed by the CHP – above all, İstanbul and Ankara – have made a name for themselves through their social municipal policies. They have taken various measures to counter the rising cost of living and poverty, realised social benefits, awarded scholarships for students and built student accommodation. Of great importance are the non-profit munici­pal restaurants (Kent Lokantaları) subsidised by the CHP-led municipalities, which help relieve the burden on the low-income segment of the population. That the central government is uneasy about these municipal restaurants is evident from the investigation launched by the Ministry of Trade into gastro critic Vedat Milor over “clandestine advertising”. Milor had visited one of those restaurants in Üsküdar (İstan­bul) in January 2025 and shared his culinary impressions on his YouTube channel.

The CHP has succeeded in improving the everyday lives of broad segments of the electorate through its social policies in the municipalities it governs, particularly the İstanbul Metropolitan Municipality, and promoting itself as a potential governing party at the national level. Such an approach serves as an alternative to the Erdoğan gov­ern­ment’s economic model, which is based on high interest rates, a reduction in pur­chasing power and cuts to social benefits. Against the background of the nationwide frustration with the current economic misery – high inflation, loss of purchasing power, poverty and fears for the future amid today’s precarious conditions – the CHP’s local policies are clearly undermining the reputation of the Erdoğan government.

The price of instability

At the same time, the government crack­down on the opposition entails risks for the economy. Immediately after the arrest of İmamoğlu and others close to him, the mar­ket capitalisation of companies fell by around 1.9 trillion Turkish lira. Capital outflows accelerated and investors shifted from domestic assets to foreign currencies. The benchmark interest rate rose from 37.1 per cent to 44.6 per cent, pushing up the government’s borrowing costs by 7.5 per­centage points. And the Turkish risk pre­mium rose from 250 basis points to 383, which significantly increased the cost of foreign loans.

For its part, the Central Bank of Turkey (CBRT) had to sell foreign currency on the market to prevent a drastic rise in the ex­change rate; as a result, its reserves fell by almost US$25 billion. The total assets of the banking sector plummeted, too – by 25 per cent. The CBRT’s Monetary Policy Committee convened a special meeting to stop the erosion of the bank’s reserves and raised the overnight rate from 44 per cent to 46 per cent. These recent developments are expect­ed to have a negative impact on the assess­ments of the rating agencies that evaluate Turkey’s credit and investment worthiness.

Thus, the arrests and street protests have clear economic consequences. And this in itself suggests that the economy may prove decisive in dissuading the Erdoğan govern­ment from pursuing any further escalation or autocratisation.

Three scenarios

Consolidation of autocracy: The street protests subside, the EU and the US are restrained in their criticism and İmamoğlu is banned from politics after being con­victed of corruption and supporting terror­ism. Erdoğan and his government secure their grip on power and continue with the repressions. The opposition fragments and is no longer able to act; the parliament is dissolved at a politically favourable time from the government’s point of view. Erdoğan and his People’s Alliance emerge victorious from the early elections and the autocratic regime is consolidated.

This consolidation of autocracy causes economic instability. Turkey is dependent on foreign direct investment and capital inflows to boost growth; but the imprisonment of an elected mayor on flimsy charges and the arrests of well-known figures – from actors and journalists to influential business leaders – on an almost daily basis create an unfavourable investment envi­ron­ment. The subsequent stagnation of the economy has a negative impact on German and European exports to Turkey, fuelling further migration from Turkey to the EU and especially Germany.

Disintegration of the governing bloc: Amid internal tensions within the AKP and the People’s Alliance, mounting inter­nation­al criticism – particularly the un­compromising stance of the EU – and grow­­ing dissatisfaction among the popu­lation and the business community over the political and economic situation, the MHP withdraws its support for Erdoğan and the AKP. The CHP, the MHP, the DEM and other opposition forces form a parliamentary alli­ance with a two-thirds majority and dis­solve the parliament. This paves the way for new parliamentary and presidential elec­tions. İmamoğlu or another consensus can­di­date runs for the Presidency and defeats Erdoğan. However, an alliance com­prised of parties with such divergent politi­cal agendas is unlikely to ensure a smooth transition or democratisation; rather, it could well usher in a period of political instability.

Agreement on early elections: Fearing the economic consequences of further esca­lation, Erdoğan yields to public pressure, opposition resistance and criticism from the EU. He uses the criminal proceedings against and pre-trial detention of İmamoğlu as a strategic bargaining chip vis-à-vis the CHP leadership. Against this backdrop, the two sides agree to hold early elections. İmamoğlu is released from pre-trial deten­tion and the charges against him dropped – provided that the CHP consents to the dis­solution of the parliament and new elec­tions. This sequence of events could lead to a more stable political transition – one in which Turkey establishes a new electoral system and repositions itself politically under a new president and a CHP-led alli­ance. Moreover, the orderly transfer of power, accompanied by political and eco­nomic stability, would offer the chance to reset EU–Turkey relations and could strengthen the EU’s geopolitical standing.

All three scenarios are conceivable. Whether any of them materialises – and if so, which one – will depend on both the political dynamics within Turkey and the reactions and developments in the inter­national arena. A key factor will be whether the street protests continue to be non-vio­lent and whether the CHP is able to in­crease pressure on the Erdoğan government, main­tain a broad opposition alliance and gain the support of civil society, trade unions and business associations. The degree to which the EU acts with unity will play a crucial role, too. Ultimately, the interplay between domestic and international pres­sure could force the Turkish government to reconsider its repressive, autocratic course in order to achieve its geopolitical, foreign-policy and trade objectives.

For their part, Germany and the EU have security and economic policy instruments at their disposal with which to exercise a constructive influence over Turkey.