ISTANBUL, Turkey — Greece, embroiled in its worst economic crisis in living memory, has received an offer of support from an unexpected source.
While the headlines are filled with strikes and violent riots in Athens, as the country staggers under $400 billion in debt, increasingly expensive repayments and a junk status credit rating, Turkey is reaching out diplomatically and — the Greeks hope — soon financially.
Turkey's rise as a powerful regional actor stands in contrast to the trajectory of its age-old rival across the Aegean.
The Turkish economy is on fire. Growing at an average yearly rate of 6 percent between 2002 and 2008, this year Turkey is set to grow faster than any country in the European Union — which has thus far refused to admit Turkey to the club, in part because of Greek opposition.
Turkish Prime Minister Recep Tayyip Erdogan last week led a 300-strong delegation of Turkish officials and businessmen to Greece for a visit aimed at a soothing the often antagonistic ties between the neighbors and helping Greece out of its debt crisis.
"Those who write history will write that two ancient civilizations, two important actors are now embarking on a path towards peace and friendship," said Erdogan at a joint press conference with Greek Prime Minister George Papandreou.
Even just a few years back it would have been difficult for most Turks to imagine their prime minister extending a helping hand to this longstanding rival.
The two neighbors share deep ties, but an even deeper sense of rivalry. Since Greece won independence from the Ottoman Empire in 1832, the two sides have fought four major wars. While the relationship has become more cordial over the last decade, territorial disputes over the Aegean Sea remain a thorn in the side of these two NATO allies. Looming even more heavily is the ongoing issue of Cyprus, whose Turkish and Greek peoples remain divided.
Meantime, Greece’s biggest bank is relying on Turkey to pull it through the economic crisis. With an eye toward benefiting from Turkish economic growth the National Bank of Greece SA plans to open 75 branches across Turkey this year.
The reasons for the expansion are clear — even last year, before the full weight of crisis hit, the National Bank earned more at its Istanbul-based Finansbank AS unit than it did in Greece. And it’s not just the National Bank. While Greece’s four largest banks saw their combined profit drop 41 percent last year, Turkish banks increased profit by almost 50 percent.
“The purchase of Finansbank by the National Bank of Greece was better than a good investment, it was excellent,” said Devrim Baykent, Vice President of Bank Relations at Finansbank.
Finansbank is the brainchild of renowned Turkish finance guru Husnu Ozyegin. In 2006 Ozyegin finally cashed in on his prize investment — which he had built up from a single branch in the late 1980s to what is now the 5th largest private bank in Turkey — selling 46 percent of the shares of the Turkish branch of Finansbank to the National Bank.
With a notoriously volatile economy throughout the 1990s, Turkey has its own tales of banking blues. Since the economic crisis of 2001, however, the banks have recapitalized, reduced inflation, cut state debt and greatly increased transparency.
“The beginning of the decade was tough for us,” Baykent said. “But afterwards we sat down and did our homework. Now look at us.”
Indeed, between its growing regional status, membership in the G20 group of leading world economies, and dynamic rate of growth (expected to exceed 5 percent this year), Turkey is undoubtedly on the rise economically. However, Erdogan's diplomatic largesse has gained easily as much attention domestically.
His visit to Athens — the first by a Turkish prime minister since 2004 — led to the signing of 21 accords in fields as diverse as illegal immigration, boosting tourism and energy.
The keystone proposal to jointly trim their defense budgets was the elephant in the room for much of the visit. Though widely commented upon by both sides, no deal was signed.
"The development of relations between Greece and Turkey will boost the climate of trust and stability [and] ultimately the natural consequence could be arms reduction," Erdogan told Greek newspaper Ta Nea.
The issue is key to the Greeks. Having reached out to the EU and IMF for a multi-billion-dollar bailout package, Athens is being forced to take a fresh look at its military spending. A country of just 11 million, Greece spends a higher percentage of its GDP than any other European Union country on its military — much of it for defense against Turkey.
"We are afraid that one day Turkey might decide to take away a Greek island," said Papandreou. "Don't laugh," he continued, in response to amusement from the audience. "This is really what we fear."
Turkey has its own reasons for wanting to prune back their military. With Erdogan and the ruling Justice and Development Party endlessly locking horns with Turkey’s military and secular elite, this could be an opportunity to knock the once untouchable army down yet another peg. Their 600,000-strong army is currently one of the biggest in NATO, second only to the U.S.
Rebuilding a friendship between such age-old rivals will take more than a temporarily outstretched arm and burgeoning economy, however. Many of the most contentious issues still remained unresolved.
"The intentions are good but the thorns remain," headlined Greek paper Ta Nea.