President Recep Tayyip Erdogan has claimed victory in Turkey's hotly contested but controversial referendum on introducing an executive-style presidency with sweeping powers. The razor-thin victory for Erdogan’s Yes camp in the referendum now raises difficult questions over Turkey’s near-term political and economic outlook as well as its relations with the EU. 

The Yes camp, led by Erdogan’s ruling Justice and Development Party (AKP) and the opposition Nationalist Movement Party (MHP), won 51.41% of the vote in the April 16 referendum, according to unofficial results. The No camp was only a couple of percentage points behind with 48.59%.

Making it harder to persuade the opposition to accept the result, while vote counting was underway the Supreme Electoral Board (YSK) announced that it would accept ballot slips that did not bear an official stamp. 

The main opposition Republican People’s Party (CHP) appealed to the YSK, demanding the annulment of the referendum, and the pro-Kurdish Peoples' Democratic Party (HDP) followed suit. The YSK and the country’s top administrative court have rejected their appeals. Dismissing suggestions of fraud, Erdogan and Prime Minister Binali Yildirim also called on the opposition to respect the results. 

Fractured opposition

Allegations of voting irregularities provoked immediate street protests, reportedly in more than 10 provinces, including the country’s three largest cities Istanbul, Ankara and Izmir, all of which voted No in the referendum.

Pro-government media are speculating that larger, Gezi-like protests that shook the country back in 2013 could be in the making. 

However, a repeat of Gezi looks unlikely. 

First, Yildirim has warned that illegal protests won’t be allowed. The memories of violent clashes, and the arrests and persecution of hundreds of people during the Gezi protests are still fresh. The warning from the prime minister will thus keep potential protesters away from the streets. 

Second, the CHP has made it clear that it would not take part in or support street protests, leaving the smaller non-parliamentary opposition groups isolated and weak. 

As things stand now, the referendum protests are unlikely to develop into a force that would pose a challenge to the AKP government. 

For its part, the CHP appears to think that it may stand a chance of winning the next polls in 2019, if the bulk of the Nay-sayers vote for the centre-left party. This is an illusion. 

The No camp was a mixed bag of dissimilar groups from very different lines of the political spectrum. Because of the sharp ideological differences between the two parties, the CHP cannot be an option for HDP supporters. It is possible that a fraction of the nationalists could vote for the social democratic party in the next elections but this won’t be enough for the CHP to win the polls. 

Parliamentary elections are not about who gets more than 50% of the vote but about which party gets most of the vote. And the April 16 referendum has showed that the AKP is still the most popular party among Turkish voters and the opposition forces remain fragmented.

A win is a win

 “I come from a football background. It doesn't matter if you win 1-0 or 5-0. The ultimate goal is to win the game. A win is a win,” Erdogan told CNN in an interview on April 19. 

There is no doubt, however, that Erdogan would feel much more comfortable if the referendum had handed him a more decisive victory. 

Now faced with a deeply polarised nation he has the option to adopt a more conciliatory tone, or choose to stick to his divisive politics. The general conviction is that he probably won’t change course.

Indeed, only two days after the referendum, the government extended the state of emergency that was imposed after the failed July 15 coup attempt. And this week, 9,103 police officers were suspended from duty and more than 1,000 people were detained over alleged links to the US-based cleric Fethullah Gulen whom the government says masterminded the botched putsch. 

Some pundits had argued that Erdogan may drop his sharp nationalist rhetoric and take steps to improve relations with the country’s Kurds after the referendum. But the airstrikes this week by the Turkish military against the Kurdish groups in Syria and Iraq suggest that Erdogan is more likely to seek to keep his nationalist-conservative supporter base intact instead, at least in the near term. 

“Reports from within AKP suggest that the sagging support in the referendum is partly blamed on polarising policies. There is also a fair amount of self-criticism within the pro-AKP press. I don’t know if any of these reflect Erdogan’s views,” Atilla Yesilada, GlobalSource Partners adviser, told bne IntelliNews, adding that he would review the new appointments in the government for signs of policy change. Yesilada expects a cabinet reshuffle within two months. 

Critics of the government have been arguing over the past couple of years that Turkey has become unmanageable because of its deep social polarisation. However, to the astonishment of his political foes, Erdogan has defied all the odds and remained in power. 

It is yet to be seen whether Turkey is now entering an uncharted territory following the referendum and whether Erdogan will be able to rule the country for another decade by keeping his hard-core supporter base intact. 

EU closes doors on Turkey?

Meanwhile outside Turkey, the reaction from the international community to the referendum has been mixed. US President Donald Trump and Russia’s Vladimir Putin congratulated Erdogan on his victory. European leaders have remained largely silent, but European lawmakers call for a review of relations with Turkey. 

Turkey’s Western allies, notably the EU, have grown increasingly critical of Ankara over the past five years. The key question is where the EU-Turkey relations will be heading after the referendum.

Erdogan has warned that “Turkey will not wait at Europe's door for ever and is ready to walk away from EU accession talks if rising Islamophobia and hostility from some member states persist”.

This week, EU lawmakers suggested that the bloc should be looking for alternatives to Turkey’s accession process, while Kati Piri, the parliament’s rapporteur on Turkey, called on the member states to suspend the accession talks with Ankara if the constitutional package is implemented unchanged. 

The fate of the fragile and often fraught EU-Turkey relations may be sealed in the next couple of weeks.

EU foreign ministers will discuss Turkey when they meet in Malta on April 28, and on May 2 the European parliament’s foreign affairs committee will debate an annual progress report on Turkey, drafted by Piri. 

Next month Erdogan is travelling to Brussels to attend a Nato summit where he is expected to hold talks with top EU officials on the sidelines. 

“As far as Brussels is concerned accession is over.  Whether this is formally announced or not is moot,” Yesilada told bne IntelliNews. “The outcome depends on Ankara’s conduct. If the government carries out its threats of introducing the death penalty, or revoking the Refugee Readmission Treaty, sanctions are more likely,” he said. 

The post-referendum economy

If Turkey finally decides to break off from Europe, this will have serious and wider consequences, especially for the country’s economy. 

“A disagreement with Turkey's Western allies would be likely to increase pressure on Turkey's ailing economy, which would undermine Erdogan's prospects for the presidential election,” London-based analyst Ege Seckin at IHS said in an emailed commentary.

Having successfully passed the change to an executive presidency on the promise of stability and prosperity, Erdogan will now face the challenge of living up to his promise, Seckin argued. 

The short term impact has been ostensibly positive. The Turkish lira has strengthened and the Istanbul stock exchange’s benchmark index has reached an all-time high after the referendum.

The government boasts of the rally in the markets as a sign of investors’ confidence in the Turkish economy, though Yesilada warns this may not continue. 

“I think financial investors will buy cheap valuations, and sell when TRY denominated assets reach valuation parity with EM averages, or the conflict with EU becomes too hard to ignore,” Yesilada said. 

The government is, however, confident that the worst is over the economy. It has promised to carry out much-needed but long-delayed reforms starting May. 

The authorities have already announced many measures to stimulate economic activity: they created a sovereign wealth fund to finance mega construction projects, cut taxes on white goods and furniture, and pledged up to TRY250bn (€65bn) in credit to private companies under the credit guarantee fund. But the government will have to struggle with some deep-rooted problems; inflation, the current account deficit and unemployment. 

Flying in the face of pessimistic predictions offered by some analysts, Yildirim, who promises more stimulus, says the revival of the economy will deepen. 

The country’s central bank agrees that the economy is on a mild recovery path. It expects the economic activity to gain further pace in the forthcoming period. 

It all boils down to carrying out reforms to create a more favourable climate environment and regaining investor confidence. It remains to be seen whether the political and social environment will allow the government to spend much of its energy on the economic reforms rather than political jostling.