Bridging the Divide: How Turkey and the EU Can Rebuild Economic Ties
"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?
A Deepening Economic Partnership
EU–Türkiye economic relations rest on the 1963 Ankara Association Agreement and the customs union framework that followed, which aimed to align economic policies and progressively expand trade. The EU remains Türkiye’s top trading partner, with goods trade reported at over €217 billion in 2025, including €103.4 billion in EU imports from Türkiye. The European Parliament also identifies Türkiye as an important economic partner and strategic neighbour in areas including trade, climate and the green transition.
Assessing Economic Ties
A balanced assessment of EU–Türkiye economic relations should combine trade data with analysis of institutional arrangements, investment, supply-chain links and political conditions. Such an approach can clarify both measurable economic outcomes and the effects of unresolved policy disagreements. However, comparisons may be limited by differences in reporting periods, definitions and the changing political context.
From Association to Integration
Türkiye applied for association with the European Economic Community on 31 July 1959, marking an early formal step toward closer European integration. The 1963 Ankara Agreement is widely identified as the starting point of Türkiye–EU relations, while the customs union established in December 1995 created a deeper economic framework. This history shows that the relationship developed through successive diplomatic, political and economic milestones rather than through a single agreement.
Decoding EU-Turkey Integration: More Than Just a Customs Union?
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.
- 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.
The Case for Modernisation
Recent research describes Türkiye as economically resilient and strategically located, while also warning that its trade policies are increasingly diverging from those of the EU, its main supply-chain partner and customs union ally. The World Institute for International Economic Studies argues that this geo-economic shift could create an opportunity to upgrade EU–Türkiye economic relations. The same analysis identifies modernising the customs union as long overdue and potentially beneficial for both sides, while other research frames the current EU approach as a form of functional substitution rather than straightforward accession.
Political Stalemate, Economic Costs
The relationship’s economic foundation remains the customs union and broader preferential trade framework established in December 1995, which helped integrate Turkish industries into European supply chains. Yet research links the deterioration of political relations and the stalemate in Türkiye’s accession process to uncertainty over economic cooperation. Studies examining the customs union, European Investment Bank loans and pre-accession assistance therefore treat political conflict as a factor that can constrain or reshape established economic mechanisms.
A Framework for Comparison
A useful comparison of EU–Türkiye economic relationships would examine institutional depth, trade dependence, investment channels and the connection between political cooperation and economic access. It should distinguish between formal integration through agreements and more flexible forms of sectoral cooperation. Because the available evidence does not establish a single comparative benchmark, conclusions should remain cautious and avoid treating one model as universally transferable.
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.
Trade and Growth Connections
A study covering 1985–2023 examines how foreign trade between Türkiye, the EU and BRICS contributed to Türkiye’s economic growth. It uses the Generalised Method of Moments, or GMM, to estimate these relationships. The study’s focus reflects a broader policy question: how Türkiye’s European economic ties interact with its interest in improving relations with BRICS.
Practical Renewal
The future of EU–Türkiye economic relations will likely depend on whether both sides can preserve practical cooperation while managing unresolved political disagreements. Potential progress would require attention to trade rules, supply-chain integration and the institutional mechanisms that govern economic exchange. Because the available source material does not establish a specific timetable or policy package, the outlook should be described as conditional rather than predetermined.
Cooperation Amid Conflict
EU–Türkiye relations are expected to combine cooperation and confrontation in the foreseeable future. This tension reflects geopolitical imperatives as well as diverging positions on foreign and security policy. Economic ties therefore operate within a wider relationship in which strategic cooperation and political conflict can coexist.
Economic Relations in Practice
For people and businesses, the consequences of EU–Türkiye relations are likely to be felt through the availability of trade, investment and employment opportunities. Stable cooperation can make cross-border economic activity more predictable, while political tensions may complicate that environment. The available source material does not provide enough evidence to quantify these effects, so their scale should be assessed cautiously.