Turkey’s two week long peaceful protests have turned extremely dangerous. The clashes between the government and protesters in Istanbul has threatened to hurt one of the Europe’s fastest growing economies.

Initially, the protests started after the government’s plans to bulldoze and redevelop Gezi Park in Istanbul. The protests were peaceful and limited in scope at first, just like the Occupy Wall Street movement.

Turkey

Protests In Turkey Widening

But it widened as demonstrators started accusing the Turkish prime minister Recep Tayyip Erdogan as becoming increasingly authoritarian. The protesters also argued that Erdogan has been trying to impose conservative Islamic values in secular Turkey. Prime minister Recep Tayyip Erdogan has decided to fight back. Rather than alleviating the protests in a peaceful way, Erdogan said that he will never tolerate such “illegal demonstrations.”

The Turkey riot police used tear gas and water cannons against thousands of protesters in Taksim Square, Istanbul. According to BBC, three people have died and over 5,000 have been injured in protests. BBC reporter Mark Lowen said that there is a deliberate show of force that may ruin the plans of a meeting between protest organizers and Mr. Erdogan on Monday. The protests have now spread all over the country.

Effects Of Protests On Turkish Economy

Turkey has impressed economists and analysts with the pace of its economic development. Inflation has come under control, industrial and services sectors have grown rapidly and the country of 75 million people now has a GDP of $800 billion. But stock markets have plunged since the protests, and has remained volatile until today. Turkey’s main stock index has declined 10 percent this month, and the Turkish currency lira is down 6 percent versus the dollar.

Government bond yields have risen sharply, suggesting that foreign investors are worried over lending money to the Turkish government. The 10-year bond yields spiked from 6.2 percent to 7.3 percent. That’s a negative sign for a country that has relied on foreign investments for its economic growth.

Bank of America Merrill Lynch analyst Arko Sen has lowered Turkey’s external debt rating from market weight to underweight. The domestic political crisis has taken a toll on capital inflows. Meanwhile, the Central Bank of Turkey has defended lira by tightening liquidity and forex sales. Arko Sen says the move will reduce forex reserves and the increase in economic activity during the first quarter will disappear slowly. Bank of America Merrill Lynch had argued in an earlier report that the Central Bank of Turkey must not cut rates deeper.

Economists say if the U.S. Federal Reserve decides to trim its stimulus program as protests continue in Turkey, that will be a big blow to the Turkish economy. The massive money printing by the Federal Reserve has reduced returns on assets like Treasuries. That pushed investors to look for greater returns in other countries like Turkey.