ANKARA (Bloomberg)–After beating his army-backed secular opponents in court yesterday, Turkish Prime Minister Recep Tayyip Erdogan now may have to learn to live with them.
Erdogan’s party escaped a ban when the country’s high court rejected charges that he sought to introduce Islamic law in violation of a constitutional mandate for a secular government. The win gives Erdogan a chance to pursue democratic reforms and European Union membership.
To succeed, he may need to abandon policies favored by his Islamist power-base, such as ending curbs on Muslim-style headscarves.
"Now Erdogan has to decide if he’s going to behave," said Bulent Aliriza, head of the Turkey program at the Center for Strategic and International Studies in Washington. "There will be pressure from hardliners in his party to be firmer on the Islamist agenda."
Turkish markets extended a one-month rally as investors bet Erdogan, 54, will set aside his desire to strengthen religion’s role in society and focus on policies that attracted record foreign capital of $22 billion last year.
Companies such as Citigroup Inc and Vodafone Group Plc have acquired businesses in Turkey as Erdogan curbed government spending, reducing debt and inflation. The main stock index has surged 27 percent since July 1 as investors anticipated he would survive the court challenge and continue those policies.
Citigroup upgraded its rating on Turkish equities to “neutral” after the court ruling, saying it removed “one of the major uncertainties hanging over the outlook."
The court’s decision marks a victory for Erdogan against a military that has dominated Turkish politics for 80 years. The army’s edicts and coups have toppled governmen’s and sidetracked Turkey’s bid to join the EU.
After the ruling, Erdogan last night pledged to keep Turkey "on the road to the EU,"’ said the court case is "a chance to solve social tensions" and promised his party will never challenge Turkey’s secular principles.
He made a similar speech a year ago after his Justice and Development Party won general elections by a landslide. Opponents said he failed to live up to that promise by proposing Islam-inspired legislation, including an end to the headscarf ban for students–a measure that was key to the indictment by prosecutors to shut down his party.
"One of Erdogan’s greatest virtues is that he learns the lesson of his mistakes," said Sahin Alpay, a professor of politics at Bahcesehir University in Istanbul. "I think he will seek a different approach to pursue reforms that won’t put him in confrontation with his opponents."
Yields on lira bonds fell as much as 89 basis points, the most since July 2006. The benchmark stock index gained 2.1 percent in Istanbul and the lira rose to a six-month high of 1.161 per dollar.
The Constitutional Court’s decision punished Erdogan’s party for its Islamist tilt by cutting about $20 million of Treasury funding. Chief judge Hasim Kilic said the verdict is a "serious warning" to the party.
Erdogan may reshuffle his government and start work on a new constitution that won’t alienate secularists, Milliyet newspaper said today.
Erdogan has fought with secularists since he came to power in 2002. Opponents say his achievemen’s, which include bringing inflation to a 37-year low and starting EU membership talks, mask a plan to make Turkey more like Iran.
Prominent among those critics is Turkey’s army, which has ousted four governmen’s in half a century and sees itself as the defender of secularism. Two of Turkey’s most senior retired generals are currently in jail pending charges of involvement with a terrorist group aiming to overthrow Erdogan’s government.
The EU, which started membership talks with Turkey in 2005 and has criticized army involvement in the country’s politics, said Erdogan should seize the opportunity presented by the court verdict.
EU Enlargement Commissioner Olli Rehn urged Turkey to resume "reforms to modernize the country" and said that would require "a consensus forged through a broad-based dialogue with all sections of Turkish society."
Erdogan will seek accord with rivals on ways to advance Turkey’s EU bid and bolster the economy, Nurettin Canikli, Erdogan’s deputy chief in parliament, said in an interview today.
The ruling also may allow Erdogan to continue his attempts to become a bridge between the West and nations such as Iran and Syria, which have opposed U.S. policy in the region. President George W. Bush is banking on political stability in mostly Muslim Turkey to help forge democratic change in the Middle East.
Turkey is brokering peace talks between Israel and Syria and helping negotiate a standoff between the United Nations and Iran over the Islamic republic’s nuclear program.
Erdogan says he has a mandate to bolster democratic freedoms after winning 47 percent of the vote in parliamentary elections last year, the biggest victory margin since 1965. Elections are due again by 2012.
Turkey’s secular establishment won’t allow Erdogan to have things all his own way, Aliriza said.
"Erdogan’s opponents must be thinking how the hell are we going to get rid of these guys if we can’t beat them at the ballot box and the judiciary won’t deal with them effectively," he said. "I don’t think Turkey is out of the woods yet."