Prime Minister Erdoğan returned home yesterday from his trip to North Africa and immediately erased any hope that might have existed that he has been chastened by the protests rocking Turkey. He was met at the airport by a few hundred (or a few thousand, depending on who is doing the counting) supporters whom the AKP had bussed in to greet his plane (along with others who got there via metro and tram lines that were mysteriously kept open after hours), and the PM was not in a particularly conciliatory mood. In a fiery speech, he called for the protests to end immediately, blamed shadowy foreign interests and international bankers for stirring up trouble, and said that the stock market dip was caused by speculators and the “interest rate lobby” while his supporters chanted that they were going to “crush” Taksim Square. This stands in stark contrast to President Gül, who continues to send signals indicating his displeasure with the government’s response to the Gezi protests. It seems that Erdoğan, however, is beginning a campaign to mobilize his supporters to start showing up in the streets, and has no intention of backing down, admitting real errors were made, or apologizing for the police response to the protests. He is rather gearing up for a showdown and counting on the fact that the AKP still has enormous support, so much so that it would almost certainly be reelected for a fourth term were elections held today.

None of this should be surprising. Erdoğan is supremely confident, not prone to self-reflection or course correction, and has surrounded himself with a coterie of yes men who either cannot or will not stand up to him. He never admits mistakes and seems to be genuinely offended and incensed that protestors are committing what he views as illegitimate criticism and illegal acts against the government, and there is nothing in his nature or his track record to suggest that he is suddenly going to become more diplomatic and less Manichean in his outlook. To Erdoğan, the government is unqualifiedly in the right and the protestors are unqualifiedly in the wrong, and the fact that he has begun resorting to nationalist rhetoric about foreign powers and speculative bankers and keeping up his lines about terrorists in the streets show that he is purposely appealing to polarizing cleavages in order to strengthen his base of support and that he is also continuing to misread what is actually driving the protests. Expecting him to back down given this mindset is bound to lead to extremely frustrated expectations. Erdoğan is convinced of his cause, and almost nothing is going to change his mind.

On the other side though, there are some serious structural economic conditions that are soon going to make Erdoğan’s stance more difficult to maintain. Erdoğan’s bombast has been very bad, to say the least, for the Turkish economy. During his press conference in Tunisia yesterday, the Turkish stock market dropped 4.5% and bond yields rose 60 basis points literally while Erdoğan was speaking – which this graphic does a better job of illustrating visually than any numbers will do – and overall Turkey’s benchmark index is down 15% since the end of May. Bond yields are now at 8%, and by some estimates $1 billion in capital outflows left the country in the last week. This is not at crisis level yet, but the government is playing a dangerous game given how heavily it relies on foreign capital. The Turkish economy relies on outside short-term loans comprising 25% of GDP and the Turkish economic miracle has been driven by hot money. In addition, Turkey’s current account deficit is driven by energy imports, which is not bound to change anytime soon, and the only good way of even making a dent in the deficit is by increasing exports, which will be far more difficult if the unrest continues as it contributes to a credit crunch and the drying up of foreign financing. The only reasons the current account deficit has not been a bigger problem is because of Turkey’s sustained economic growth, which had already slowed down in 2012 and 2013, and certainly what is taking place right now is not going to help matters. If foreign investors become too spooked, Turkey will potentially face a fiscal crisis that will erase many of the economic gains made under the AKP.

This is important for deeper political reasons as well. Despite all the talk of the AKP as an Islamist party that appeals to a socially conservative populace, it is important to remember that the AKP ran in 2002 on an economic platform of which the primary plank was joining the EU. Many of those socially conservative Anatolian voters cast reelection votes for the AKP in 2007 and 2011 because the Turkish economy has taken off under this government, and while the values aspect of the AKP is appealing to them, it is the economic growth and improved living standards that are most important. The reason for the AKP’s unprecedented vote totals – and remember that the AKP has gained an additional 15% of the vote from 2002 to 2011 – is because more people are more well off, and those social conservatives have been joined by a fair share of more liberal and more secular voters who vote for the AKP on economics alone. Erdoğan is counting on the 50% of the country who, as he repeatedly reminds everyone, voted for him less than two years ago to keep on supporting him as he takes a hardline against the people in the streets, but if he thinks that all of these voters are solidly in the AKP camp come economic hell or high water, he is in for a shock. Nationalist rhetoric will only take him so far in this situation, and as Erdoğan raises the stakes of confrontation while the economy begins to teeter, he is creating a potentially explosive situation.

It is tough to see which side is going to give here. Erdoğan does not want to back down, but my instincts tell me that as he is reminded of just how much his popularity depends on the economy and as he faces the prospect of losing the bid for the 2020 Turkish Olympics, he will try to come up with some sort of solution to end the chaos in the streets without having to go so far as to issue a formal full-blown apology. The fact that there is no opposition party poised to take advantage of the situation makes backing down slightly easier for him to do, and even Erdoğan understands just how crucial it is for his and his party’s longterm political future to make sure the Turkish economy keeps humming along. Only the prospect of serious economic damage will get him to back down, since giving in to the protestors in any way is completely anathema to his general philosophy and outlook. How long it will take for him to get to this point is way beyond my prognostication skills, but I’d be surprised if he doesn’t get there at one point or another.