Turkish delight: influencing the new Syria

0:02The Economist

0:10Hello and welcome to The Intelligence from The Economist. I'm Jason Palmer. And I'm Rosie Bloor. Every weekday we provide a fresh perspective on the event shaping your world.

0:24Joe Biden was cautious about the role of cryptocurrencies. Donald Trump is not. He wants to integrate crypto into the financial system. Our correspondent asks how this will affect America's economy.

0:39And Mauro Morandi ran away from home for the first time when he was nine years old. Eventually, he did it for good, living alone on an Italian island for decades. Our obituaries editor remembers him.

1:04But first...

1:09In Syria, the fall of Bashar al-Assad has brought about all kinds of change. My life turned from establishing my life in London to establishing my life in Damascus. Last week, we spoke with people who had fled the regime but who are now moving back to the country. You said Masyaf is the center of the world? Yes! The central of the world. Yes, it is true. But there's far more going on than exiles pouring back in. Foreign products are too, from Lebanese milk powder to Snickers and Pringles. And foreign powers see a reshuffling of the deck as well, perhaps one more than any other. Probably no country has as much to gain from a stable Syria as Turkey, and few countries has as much to lose if Syria once again implodes.

2:01Piotr Zalewski is our Turkey correspondent. President Recep Tayyip Erdogan, Turkey's leader, has quite the far-reaching agenda for Syria. But it is an agenda that could cause tensions with the Arab world and may be causing tensions already, especially with Israel. So let's start with kind of an upsum of why Turkey has such an interest in Syria. Where to start? I mean, Turkey has a 900-kilometer border with Syria. And that is a border that has been a problem for Turkey for many reasons. One is that Turkey has had to deal with the blowback from Syria's civil war over the past 13 years. That blowback came in the form of terrorist attacks by both Islamic State and the PKK, the Kurdish militia.

2:50And in the form of more than 3 million Syrian refugees who fled Syria's civil war and have since settled in Turkey. Today, what Turkey wants is a Syria that is stable and safe enough for many of those refugees. And it also wants to maintain security along that border with Syria. To that extent, Turkey wants to smother Kurdish autonomy in Syria's north. It wants to help the interim government build a new Syrian army and to build back influence in a country that it had controlled as the Ottoman Empire for about four centuries. And so when you say Mr. Erdogan wants to rebuild influence, what's he doing so far in that regard?

3:35So Turkey wants to have economic, political and security influence in Syria. To that end, Erdogan has offered to help the country come up with a new constitution. Turkish businessmen have already been rushing in. Turkish Airlines has resumed flights to Syria on January 23rd. Turkish dignitaries were the first to visit Damascus since Hayat Tahrir al-Sham took power. And Turkey already has a military presence inside Syria. As a result of a series of army offensives against a Kurdish militia in Syria's north, Turkish troops and their proxies, a motley of Syrian Arab militias, already occupy parts of the country.

4:19Turkey has also propped up the quasi-state that HTS had carved out in Idlib province, which had been HTS's biggest and only stronghold. So as you say, the Turkish footprint in Syria is already large. This is a matter of sort of stabilizing what is already there, what was there before the war, or a matter of getting a further foothold in the country, do you think? Well, Turkey's footprint in Syria was already large in only one regard, and that is the security dimension, right? So Turkey has been occupying areas of northern Syria for some time now, but it had been at odds with the regime of Bashar al-Assad.

4:57And now, with the fall of that regime, Turkey has a friendly government in Damascus. And that means that Turkey is presented with an opportunity to grow its footprint in Syria. First of all, Turkey is unlikely to withdraw troops, and the interim government has not asked it to do so, at least not for the time being. Instead, Turkey is threatening to launch a new offensive against the US-backed Kurdish militia. But Ahmed al-Shara, Syria's de facto leader, is asking the Turks to wait for the result of negotiations. What al-Shara wants is to try to integrate the Kurds into a new Syrian National Army.

5:37But Turkey has made it clear that its patience will not last indefinitely. Now, putting together a new Syrian army would mean integrating not only the Kurds, but also the motley of militias backed by Turkey and by Mr. Erdogan, who helped Turkey maintain the occupation in the north. All that to say that it will be impossible to forge a new Syrian National Army worthy the name without Turkey's support. The situation in Syria has been in these recent years already quite complicated. It remains so now. I think one clarifying question might be the current de facto leaders of Syria HTS. What do they want?

6:19How do they see this situation and Turkey's outsized influence? Well, it is true that Turkey probably has more leverage on Syria today than it has had at any point over the past century. But that's not to suggest that HTS sees itself as a vassal state. In fact, HTS feels that it does have plenty of wiggle room. And it is shopping around for support, well, beyond Turkey. Saudi Arabia is sending humanitarian aid to Syria and has offered to replace Iran as Syria's main oil supplier. And it is true that Saudi Arabia can far outspend Turkey, which has been engulfed by economic crisis over the past few years, in rebuilding Syria.

7:07Turkey would like to train and equip Syria's new army, but it appears that HTS is also entertaining other offers. Also, it should be said that Turkey is being very careful not to seem like too much big brother country. And Turkish officials have been underlying the respect for Syria's sovereignty and or the interim government. You hinted earlier that all of this and this sort of sense of a scramble here might lead to wider regional tensions. What did you mean by that? Well, there's certainly competition for influence in the new Syria. And there are some worries by Arab states that Turkey will play too big a role in Syria.

7:54These are fears that are shared by Saudi Arabia, among others, which sees Turkey as a rival for leadership in the Sunni world by the UAE and Egypt, who, like Saudi Arabia, resent Erdogan's support for Islamist groups in the region. Overall, I think the Arab powers have welcomed cautiously the collapse of the Assad regime, which they saw as an Iranian foothold in the Arab world. But these powers do not want to see Syria break free of Iranian influence only to come under Turkey's. But the outside power that Turkey fears the most in Syria is not an Arab country, but Israel. Turkey is worried about Israeli support for the Kurds.

8:43And Israel is worried about Turkey's support for HTS and other radical groups inside Syria. So there are fears in both Turkey and Israel that the two countries are on a collision course in Syria. And that tension is a reminder of what exactly is at stake for Turkey. If the new Syria thrives, the rewards for Turkey will be greater than for anyone else. But if chaos returns, it will suffer the blowback. Piotr, thank you very much for your time. Thank you for yours.

9:28You probably know by now that the Trump administration is big on cryptocurrency. The president has surrounded himself with crypto enthusiasts. One of those is Elon Musk, who heads a new government body, Doge, which is named after a meme coin. Dogecoin is my sort of favorite cryptocurrency because it has the best humor and has dogs. And the president himself has his own coin. I don't know much about it other than I launched it. I heard it was very successful. Trump has also signed an executive order announcing that digital assets would play a crucial role in innovation and economic development in the United States, as well as our nation's international leadership.

10:09So what does the union of crypto and government mean for the financial sector? For the past several years, it's been a very negative environment for cryptocurrency in the mainstream financial world. Mike Bird hosts our Money Talks podcast and is our Wall Street editor. Under the Biden administration, regulators have been very sceptical about tie-ups between mainstream finance, between the banking industry, between asset managers and cryptocurrency. They've prohibited a lot of activity and they've tried to throw sand in the gears elsewhere where things haven't been explicitly forbidden. Now, that's all changing.

10:48There's a bit of a realignment going on between banks, mainstream finance and the crypto industry. That's going to be a big deal for a lot of mainstream finance companies that have been very keen for a long time to get in on some of the money making opportunities in crypto. But it's likely to cause a lot of friction as well. Surely in some ways the banks and crypto are pushing in the same direction. Yeah, absolutely. There are loads of things that banks would have liked to do for crypto firms as clients, crypto services that they would have liked to offer over the past few years. That's mostly in areas like custodying clients' crypto assets, holding crypto assets on behalf of their clients, which has been very difficult because of accounting rules put in place by the Securities and Exchange Commission.

11:40That sort of thing is being swept away very, very quickly with the new administration. We've already had guidance released that changes that quite a lot. It's going to make lots of sort of crypto-related activity with banks. That includes things like issuing their own tokens, experimenting with stable coins, which are crypto tokens pegged to the value of something usually the US dollar. Banks would have liked to do all this and they haven't really been able to. There's also been a major issue with something called debanking, which is basically the difficulty that a group of people have had in accessing bank accounts, being given banking services, or even having bank deposits and having their bank accounts closed.

12:20That's been regulatory activity because the industry is considered to be high risk. Banks would be much happier, I think, generally, extending their services to crypto firms. And so in that sense, this regulatory changing the guard is something that a lot of mainstream finance is going to be perfectly happy with. So how would that actually change things on Wall Street then? Well, yeah, there's a lot of banks that are already looking to get into this. I think a lot of banks want to work on things around the transaction space. They don't necessarily want to make enormous investments in crypto themselves.

12:52They certainly don't want to be significantly exposed to the ups and downs of the crypto market themselves. But they may do things like offering stablecoin-related payments. Again, those are those tokens that are pegged to the value of the dollar. They'll certainly want to experiment in these areas, most of all. They're already doing so, especially outside of the US in some narrow areas. They'll custody crypto on behalf of their clients. And I think one thing that's important here is some of this change will likely now be permanent or last for a long time. in large part because once banks start doing this, it's much more difficult for a future administration to stop them.

13:30Bank regulators typically are much more comfortable saying no to new things than they are to repealing entire lines of existing business. So that's something important to keep in mind. Mike, call me old-fashioned, but I still think of crypto as the Wild West and pretty volatile. So won't integrating it into traditional banking be pretty risky? I think the short answer is yes. There are pockets here where there's huge risk. The industry has a dubious reputation, frankly, for a good reason. Some of the very high-profile people, especially around crypto exchange activity, have ended up in jail. Sam Bankman-Fried, the founder of FTX, was jailed for 25 years on charges of fraud.

14:10Changpeng Zhao, founder of Binance, spent four months in prison on money laundering charges last year. It's not just the fact that there's a lot of sort of criminal activity surrounding this. It's also the fact that the assets underlying it are extremely volatile because they're inherently speculative. They can go up very rapidly, but they can also go down very rapidly. And the problem with a bank, an inherently conservative financial institution, being a little bit more exposed to those ups and downs in terms of potentially depositors pulling their money from the bank, in the case of crypto prices crashing, it connects these two areas, the banking system and what's happening in the crypto market.

14:49We've already seen this happen in the case of two fairly crypto-exposed banks, Signature and Silvergate, in 2023, which really, really struggled after cryptocurrency prices fell and after the FTX collapse. And both of those banks ended up collapsing as well. So there is certainly risk in more financial institutions getting involved with this. I think there's two things to consider. There's one argument that I've heard from several people, which is that getting more banks into this is adding on more risk. The second is in the opposite direction, which is the more you spread out crypto-related clients through the banking system, the safer it is on aggregate, and you don't need these individual banks which are very, very crypto-exposed, which are willing to take that significant regulatory risk.

15:36I don't know how it ends up coming out in the wash, whether you end up with more risk on aggregate or less, But this is certainly something that's worth considering. But either way, Mike, it sounds like you're saying crypto is going to become more integrated into the US finance system under Donald Trump. Absolutely. And I think you only need to really look at these financial interests. We've got a lot of financial disclosure information on people close to the campaign and going up into cabinet secretary positions, into major roles and people will be in and around the White House. There's a huge amount of direct exposure to the crypto industry in a way that there really wasn't under Donald Trump's first term.

16:13These things are going to be bound together. It is now a not insignificant part, I would say, of Donald Trump's general political movement. And these two things are completely aligned. And this was, frankly, a big ask of the crypto industry during the campaign. These issues around debanking, around broader access to the financial system. Donald Trump made promises on these. And, you know, he's fulfilling that now. We've seen a lot of immediate regulatory action, missives coming from the FDIC, the SEC, those bank regulators I mentioned earlier. It's already starting. So, yeah, it's going to be a huge change.

16:47Mike, thank you very much. Great to talk to you. Thanks.

17:01It's finally Friday, and that means it's almost time for the weekend intelligence. This week, we bring you the story behind the story of the great Hindu epic, the Mahabharat. It's a wild tale, and so is the battle behind whether and where in India the real events behind the myth may have occurred. Ultimately, it all comes down to who gets to control the past.

17:37Mauro Morandi wanted to go to Polynesia. Anne Rowe is The Economist's obituary's editor. He had just the right craft to do it. It was a 16-metre-long catamaran with seven cabins. It was called the Ferrari of the Seas.

17:56And he was going to sail it from Italy right across to Polynesia, and there, in the footsteps of Paul Gauguin, he was going to find rampant tropical vegetation, coral reefs, wonderful blue tropical seas and brown brooding beautiful women. So he set off with a crew and unfortunately they didn't even clear Sardinia before they ran into an enormous storm.

18:28And they had to put him for repairs at an island called La Madalena, a town and an island both called La Madalena. And there they had to hang around for a while. He started to talk to an Argentine man, and the man mentioned that the tiniest island in the archipelago was called Budeli and was the most beautiful place on earth.

18:57So Mauro found that almost instantly he had acquired the job of Warden of Budeli. And it was indeed the most beautiful little island. Oddly enough, it also had the coralline beaches and the turquoise waters and the rampant vegetation that he'd been meaning to find in Polynesia. He'd been longing to make this escape for a long time. He'd always been a wanderer. When he was a teenager and a young man, he used to take the family punt down the canals and ditches round Modena, where he lived with his family. It was all very flat country, though, and the canals were all very tame. He longed, really, to be in the open sea, to be in a much riskier place where no-one was going to protect him.

19:53With having acquired the wardenship of Budeli, Here was his place of exile. It was not an arduous job on the face of it. He just had to watch over the island, which was about two square kilometres in extent. And it had the most wonderful pink beach, which was made of crushed coral and shells and fossils. A really beautiful beach, which was in fact protected after 1994. He also had to work on himself. so he went there intending to read a lot and simply discover who he was. It was going to be quite a difficult time because he only had a tiny cottage to live in made of granite blocks. He didn't have any running water.

20:42It was just a system to catch rainwater. There was no electricity apart from a solar panel on the roof. All his food had to come in from La Maddalena because he had tried to grow vegetables but they didn't take. And his only form of transport was a dinghy. In the winter he couldn't leave the island at all because the winds could sometimes whip up savage storms and keep him in the house for perhaps a month at a time. But all these privations were as nothing to the compensations. The first of them was just watching the sun rise over the sea in the morning and to go down and sit in his armchair on the edge of the beach and have his meagre breakfast, smoke his first cigarette and just rejoice in the fact of the sun rising.

21:45He wasn't actually without some company there because until 1994, when the beach was closed, tourists would come in their thousands, in fact, to sunbathe and swim there. He used to keep his distance at first, believing they were the real problem on the island and hating their music and the litter they left, and he had to clear up. But gradually he realized that if he heard a message about saving the planet, about starting with Budeli and preserving its beauty and its purity and its remoteness from people. He had to start by talking to the visitors. So after a few years of seclusion, he invited them to come under his veranda and to talk about the problems of climate change and the benefit of preserving pristine places where people could find silence.

22:42It was vital to preserve that sort of thing. And he left them always with the message that they should be conscious travellers, in his words, by which he meant, looking very closely to find beauty in everything and to love it and therefore to respect it and keep it. But sadly, by the end, it became clear that he was going to have to leave. He was in his 80s, his health was fading, but of course he didn't want to leave for a moment, and he fought the idea with all the means he could. So the authorities gave him a one-bed apartment in La Maddalena. It turned out to be full of noise. He terribly missed that deep silence of Budelli.

23:36But at least he had a balcony and he could see the sea.

23:42and he would spend almost as much time as he'd spent on Budeli just looking at the horizon and thinking and quite often wondering whether his three decades on that little island had really happened or whether they had just been a dream. Anne Rowe on Mauro Morandi, who has died aged 85. Thank you.

24:39Guy and our assistant producer is Henrietta McFarlane with extra production help this week from Emily Elias and Peter Granitz. We'll all see you back here for the weekend intelligence tomorrow.