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As of last week, the lira was down 17 percent against the US dollar for the year, spooking global investors as many banks have borrowed money from Turkish companies. On Tuesday, the currency rallied, jumping 5.2 percent on the US dollar to trade at TL4.467 - its strongest week since 2009 - but still down 15.3 percent for the year. According to figures from the Bank of International Settlements, which measures financial and credit flows, global banks have lent just under €200billion to Turkey. Spanish banks have lent the troubled country £62billion (€71 billion), ahead of France (£22.6 billion), Italy (£13.6 billion) and Germany (£9.8 billion). Spain’s BBVA owns almost half of Garanti Bank, the third largest financial centre in Turkey, with this share contributing a fifth of BBVA’s profits last year.

The crashing Turkish lira has sparked fears of a huge financial crisis across Europe

Even more alarming is that BBVA’s share has lost 14 percent of its value so far this year, significantly more than the 2.7 percent lost by the Spanish market as a whole. Since the Turkish lira went into freefall, UniCredit Bank's share has also lost a fifth of its value. Charles Gave, strategist at the independent analysis house GaveKal, said: “European banks are vulnerable to a worsening crisis in Turkey. “When it comes to major defaults in Turkey, it takes little imagination to predict new banking turmoil in Europe.” The banking business in Turkey has been highly profitable for many years, which was also due to the economic policy of Turkish President Recep Tayyip Erdogan and through extensive guarantees, he stimulated private credit growth.

The lira had lost more than 20 percent of it's value against the dollar since the start of the year

In contrast, the Turkish economy grew by 7.4 percent last year - quicker than financial growth champions China and India. The banks that financed the boom were the beneficiaries of Mr Erdogan’s growth craze, and companies took up debt in dollars. But now with every one percent the lira loses, the dollar debt automatically rises, meaning the first turkish companies can no longer meet their financial obligations and have had to restructure their loans. Mr Gave said that particularly weak financial institutions in southern Europe may need state rescue services. These are prohibited under the new rules of the European Banking Union but in Italy or Spain, it would be difficult to enforce to make bank customers pay for their financial rescue.

BBVA, which owns almost a fifth of Garanti Bank, has seen its share value plummet 14 percent

According to Mr Gave, the financial buffer of Turkey is by no means sufficient to fight a longer-term crisis, and even £102 billion of official foreign exchange reserves would not cover short-term debt and current account deficits. But this sum is artificially inflated by the gold reserves and foreign exchange reserves of private banks - both positions would unlikely be used by the central bank in an emergency. In the next year, Turkey will have to repay loans to foreign creditors amounting to £136billion. Furthermore, there is the additional current account deficit off £38 billion - Turkey imports more goods and services than it exports, with the rising price of oil impacting its balance sheet.

If President Erdogan wins the general election on June 24, he could resort to radical measures