Since the start of August, the currency crisis has intensified and become full-blown. The value of the TRY vs the USD dropped rapidly from 4.89 at end-July and on 10 August it plunged by -14% in one day, hitting a record low of 7.24. The plunge was triggered by the introduction of U.S. sanctions against two Turkish ministers and the doubling of tariffs that the U.S. applies to metal imports from Turkey. However, the underlying reason for the crisis has been Turkey’s longstanding high vulnerability to all kind of shocks owing to persistently large current account deficits (currently at -7% of GDP) and the huge level of short-term external debt (maturing within 12 months), currently estimated at USD180bn. This compares to FX reserves that have fallen to an 8-year low of USD76bn in June. The Central Bank of Turkey has refrained from interest rate hikes and instead taken measures to provide more liquidity to the markets and signed a USD3bn Swap agreement with the Qatar Central Bank. But these appear to be drops in the ocean, even though the TRY has recovered somewhat to 6.05 vs the USD at the time of writing (-19% in August; -37% YTD). The history of currency crises tells that decisive fiscal and monetary tightening is now needed to stabilize the economy. Otherwise a recession is highly likely.