UPDATE: Gallup has a nice new set of polls showing economic hardships rising among Turks, particularly among big-city dwellers. And while economic grievances are (not surprisingly) higher among government critics, they are rising among all respondents.
The summary version: Turkey's decade-long economic boom (which has been overstated by the government) has been fueled by a heavy dose of commercial debt (i.e., businesses and banks, rather than governments, borrowing) to fund big construction projects like The Sapphire, a newly constructed skyscraper in Istanbul.
In the past few years, many Turkish developers have borrowed in US dollars rather than in Turkish liras, as the combination of a strong lira and very low interest rates in the United States have made this cheap. The danger, as the NYT explains:
"But when local currencies start to weaken, in line with diminished economic prospects, then the effect is twofold: paying off dollar loans becomes more costly for the borrower and the lender becomes increasingly skittish about his exposure to a fragile currency and may move to reduce or even slash credit lines."More problematically, many of these loans are short-term, meaning they will need to be refinanced soon. A tightening of international credit markets or an increase in US interest rates, which will likely occur in the near future, will trigger a slowdown in borrowing and spending in Turkey, potentially plunging the country into a recession or--more dangerously--an economic crisis. This danger is true for many emerging-world economies. But Turkey, "where dollar loans of around $172 billion represent 22 percent of the overall economy", is especially vulnerable.
"It's the Economy, Stupid!"
One of the strongest findings in political science research is economic voting theory. In short, voters reward incumbent governments when the economy is good and punish them when the economy is bad. (Strangely, though there have been hundreds of articles and books published on economic voting, including one or two, both gated, by yours truly, there isn't a good single internet article on the subject--just lots of dense academic writing).
As I wrote a few months ago, a significant portion of the ruling Justice and Development (AKP) party's support has been the result of economic voting. Turkish political scientist Ali Carkoglu highlights the importance of economic voting in the AKP's success in a recent academic article (gated). The AKP won the 2002 election in the aftermath of a serious economic crisis as challengers. As incumbents, the AKP increased its share of the vote from 35% in 2002 to nearly 50% in 2011 during the economic boom. In other words, not nearly all of the 50% of the Turkish electorate who voted AKP are core supporters. Many are moderate or unattached voters who will continue to vote AKP as long as it delivers prosperity. Put differently, many current AKP voters will abandon the party if the economy goes into recession!
This fact of economic voting creates a real electoral danger for the AKP. In a certain respect, it may be unsatisfying that the economy--and not Erdogan's brutality, corruption, or anti-Semitic demagogery--could be his government's downfall. But that is what we observe over and over again (compare the fates of the governments of crisis-ridden Greece, Ireland, Portugal, and Spain with that of Germany).
Of course, recessions and crises are no sure thing. As the old joke goes, economists have successfully predicted nine of the past five recessions. So a Turkish debt crisis may well never emerge. Nonetheless, the central insight--that Erdogan and the AKP have gained power as a result of the economy and will probably lose it in the same way--remains true.