Turkish Politics Take an Economic Toll

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Secular Resentment

The current political crisis threatens to dim those achievements and complicates Turkey's uncertain path to EU membership. The situation first heated up a year ago, when Turkey's secular-dominated military attempted to strong-arm the Prime Minister into nominating a "suitable"—that is, secular—candidate to fill the vacant office of President. Turkey's entrenched secular order has distrusted the Islamist-leaning AK Party from its inception, and sought a counterbalance to Erdogan.

The Prime Minister held to his prerogative and nominated his urbane Foreign Minister, Gül, who was duly elected by parliament. The activist Constitutional Court annulled the vote and forced early elections. But the AK Party won reelection last July with 47% of the popular vote and now holds 340 seats in the 550-seat Parliament.

Erdogan used the victory to force the army to accept Gül's election and swearing-in as President. The military backed down, but resentment burned among secularists. Erdogan took the fight a step further by pushing through a constitutional amendment allowing women with headscarves to attend university, a practice that had been banned. The state prosecutor who brought the case against the AKP to the Constitutional Court specifically mentioned the headscarf issue in his indictment.

Perceived Move Toward Islam

To shift focus away from the court case and bolster his international image, Erdogan now is trying to clear away a sore spot in Turkey's foreign relations. In a speech on Apr. 3 in Stockholm, the Prime Minister proposed abolishing the notorious article 301 of Turkey's penal code, a statute that makes it a crime to insult Turkish identity and that has been used to prosecute numerous writers and journalists. The enforcement of article 301 has been a human-rights sticking point for the EU.

Moves such as these could help counteract concerns that Turkey is drifting toward a more Islamic-flavored government and society. And most observers think the Constitutional Court will stop short of throwing the government out of office. "People still believe the AK Party will find a way through," says EFG Istanbul Securities research director Cüneyt Demir Güres. Savvy foreign investors, he says, understand that crises of this sort arise every year in Ankara—and aren't taking this one too seriously.

Still, with the global economy on shaky ground and many economic indicators moving in the wrong direction in Turkey, the battle over headscarves and other matters of faith could have an outsize impact on Turkey's financial wellbeing. Businesses and investors are hoping that doesn't prove to be the case.

For more about the turmoil in Turkey, see the BusinessWeek.com slide show.

Kuser writes for BusinessWeek.com from Istanbul .