Economic bridge between Europe and Turkey.

Bridging the Divide: How Turkey and the EU Can Rebuild Economic Ties

Beau Callahan in Business & Economy August 2025 • 5 min read.

"Exploring the complexities of capital movement and integration processes between Turkey and the European Union, and what it means for future relations."

For decades, Turkey has been on a journey toward integration with the European Union, starting with the Ankara Agreement in 1963. Despite significant milestones like the establishment of a customs union in 1996 and Turkey's recognition as an EU candidate in 1999, the path has been anything but smooth. Negotiations that began with optimism have since faced serious political hurdles, leading to what some might call a frozen state. Yet, amidst these challenges, the fundamental question remains: Has real economic integration advanced beyond the initial stages of a customs union?

At the heart of this query lies the concept of free movement of capital—a cornerstone of the EU's single market. This principle, one of the four fundamental freedoms, dictates the unrestricted flow of investments and financial resources between member states. But how does Turkey, as a candidate country, navigate these requirements, and what progress has it made in aligning its policies with those of the EU? Understanding the legal framework and the practical realities of capital movement is crucial for assessing the true extent of integration between Turkey and the EU.

This article aims to explore the multifaceted relationship between Turkey and the EU, with a particular focus on capital movements. By examining both the legal obligations and the actual flow of investments, including foreign direct investment (FDI), we can gain valuable insights into the dynamics of this partnership. What are the key factors driving or hindering economic integration? How does Turkey's investment climate compare to that of the EU? And what steps are needed to foster a more robust and mutually beneficial economic relationship?

Decoding EU-Turkey Integration: More Than Just a Customs Union?

Economic bridge between Europe and Turkey.

The economic literature suggests that successful integration between independent countries is a phased process, evolving from a free trade area to a customs union, then a common market, and ultimately an economic and monetary union. Respecting this logical progression is key; trade liberalization should pave the way for the free movement of capital. Without sufficient trade flows, foreign direct investment (FDI) may struggle to flourish.

Ideally, integrating countries should be at similar levels of economic development to smooth the process. However, when countries with differing levels of development aim to integrate, adjustment periods and compensatory mechanisms become essential. These include socio-economic policies supported by dedicated financial funds designed to assist the weaker partner.

Economic Integration as a Journey: Viewing integration as a staged process, starting from basic trade agreements to full economic unity.
The Importance of Sequencing: Ensuring that trade liberalization precedes capital movement liberalization.
Development Disparities: Addressing the challenges that arise when integrating economies have different levels of development through supportive policies and funding.

In the case of Turkey and the EU, integration is occurring between entities with noticeable developmental gaps, although these gaps have been narrowing. This situation demands time and dedication from both sides to achieve both legal and practical integration. Analyzing the costs and benefits at each integration stage reveals that the less developed partner often requires transition periods to implement free movement of goods, services, and capital, while also meeting other common policy requirements, such as environmental protection and competition rules.

The Path Forward: Overcoming Obstacles and Fostering Deeper Integration

The journey of economic integration between Turkey and the EU has been marked by both progress and persistent challenges. While the establishment of a customs union laid a foundation, the process has not significantly propelled membership negotiations forward. Political obstacles continue to loom large, potentially more so than in previous EU enlargement efforts. Accepting permanent exceptions in sensitive areas could undermine fundamental principles of non-discrimination and equality among EU member states, creating complex legal and political issues. Moving forward requires addressing these core issues, promoting further liberalization, and recognizing the importance of FDI in Turkey's ongoing economic development.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.2478/cer-2014-0021, Alternate LINK

Title: Capital Movements Between The European Union And Turkey Within The Integration Processes

Subject: General Medicine

Journal: Comparative Economic Research. Central and Eastern Europe

Publisher: Uniwersytet Lodzki (University of Lodz)

Authors: Janina Witkowska

Published: 2014-10-03

Everything You Need To Know

What is the role of the Ankara Agreement in the EU-Turkey relationship?

The Ankara Agreement, signed in 1963, marks the beginning of Turkey's journey toward integration with the European Union. It laid the groundwork for a closer economic relationship, setting the stage for subsequent developments, including the establishment of a customs union in 1996 and Turkey's recognition as an EU candidate in 1999. The agreement signifies an initial commitment from both sides to pursue deeper economic ties, though the path to full integration has been complex and challenging since.

How does the free movement of capital relate to Turkey's integration with the EU?

The free movement of capital is a core principle of the EU's single market, one of the four fundamental freedoms. It means investments and financial resources can flow freely between member states. For Turkey, aligning its policies with this principle is crucial for deeper integration. Examining Turkey's progress in this area, considering both the legal framework and the actual flow of investments like foreign direct investment (FDI), provides valuable insight into the extent of its economic integration with the EU.

What are the key stages of economic integration, and where does Turkey stand in this process?

Economic integration typically evolves through stages: free trade area, customs union, common market, and finally, economic and monetary union. Turkey has achieved a customs union with the EU, but the integration process has not significantly progressed beyond that point. The article suggests that despite the customs union, there is still a need for further liberalization and alignment with EU standards. Significant political hurdles have prevented Turkey from advancing toward a common market or economic union.

What challenges arise when countries with differing levels of economic development integrate, like Turkey and the EU?

When countries with varying economic development levels integrate, as seen between Turkey and the EU, challenges emerge. These include the need for adjustment periods and the implementation of compensatory mechanisms. The less developed partner often requires time to fully implement free movement of goods, services, and capital, alongside meeting common policy requirements. Socio-economic policies supported by dedicated financial funds designed to assist the weaker partner are essential. This ensures a smoother transition and mitigates potential disparities.

How can Turkey and the EU foster deeper economic integration and overcome current obstacles?

To foster deeper economic integration, Turkey and the EU need to address core issues and promote further liberalization. Recognizing the importance of foreign direct investment (FDI) in Turkey's economic development is crucial. Addressing political obstacles is essential. Moving forward requires a commitment to non-discrimination and equality among EU member states. This includes addressing sensitive areas and promoting policies that facilitate the free movement of capital and investments. Overcoming the obstacles will require time and dedication from both sides, ensuring both legal and practical integration.