Putin. Erdogan. Orban. Trump…

Western European defeatists tremble at the mere mention of the names of nationalist strongmen that rarely miss an opportunity to point out weaknesses of the European Union.

One of their favourite targets is the Euro and its perceived instability due to the joint currency’s lack of a central fiscal authority.

Currency markets, however, can’t be easily fooled by propaganda. They provide full transparency on investor assessment of a currency’s value, especially if one takes a long-term view.

In fact, it turns out that at the time of writing (01 February 2018), the Russian Ruble and the Turkish Lira had lost more than 60% of their value against the Euro since Putin and Erdogan took power.

The picture looks less dramatic for Abe (Japanese Yen), Trump (US Dollar) and Orban (Hungarian Forint). However, these ‘strongmen’ haven’t been in power for as long as Putin and Erdogan.

Hence they still have potential to catch up with the leaders that created the blueprint for the nationalist model. Especially Trump is noticeable since the value of the US Dollar declined almost 15% in less than a year since taking office.

One might wonder whether the collapse in currency values is a reflection of deliberate policy decisions made by nationalist ‘strongmen’, or whether it is simply a reflection of investors voting with their feet.

As it turns out, a weak currency offers several attractions to a nationalist leader–in spite of the fact that the national ego might be bruised by the image of a collapsing currency.

  • Exports (sold in foreign currency) become cheaper to produce (in national currency), raising the country’s competitiveness on world markets.


  • Imports (bought in foreign currency) become relatively more expensive (in national currency), steering domestic buyers towards homegrown products.


As a result, voters thus might turn “inwards”. Expensive foreign holidays and imported status symbols (from iphones to Mercedes cars) are losing their allure on the domestic mass market, all in line with the nationalist agenda.

On the flipside, even vast markets such as Russia or Turkey are increasingly part of a globally interconnected economy. Components become more expensive to import, putting a strain on domestic manufacturing beyond mining and quarrying. Also, complex services not broadly available on the local market (eg consulting, finance, IT) will become more expensive to purchase, pushing up inflation.

In the case of Turkey, both effects have contributed to raising both the country’s inflation rate and its unemployment rate above 10%–an astronomic “misery index” above 20%. It is a uniquely poor performance among all of the larger global economies, especially since Turkey still runs a current account deficit in excess of 4%. Thus the country doesn’t benefit from the supposedly stronger export performance that a weak currency would bring. A closer look at its sectoral breakdown reveals that 25% of Turkey’s GDP still comes from agriculture, making the country highly dependent on imported value-added products and complex services.

Russia, however,  enjoys relatively low inflation (2.2%) and benign unemployment (5.2%) while actually achieving a small current account surplus, thanks to its successful transformation from commodities to industry and services.

Bottom line: not all strongmen are created equal.


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