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Turkey’s Erdogan is due for a ‘reality check,’ says Mohamed El-Erian

Turkish President Recep Tayyip Erdogan is cracking down on the opposition "without any hesitation" following a failed coup, but the country's dependence on foreign capital inflows will rein in the leader, economist Mohamed El-Erian said Monday.

"What he has to be careful of ... is that Turkey has a very large current account deficit. It depends on the inflows of foreign capital, portfolio investment and direct investment, and that's going to slow," Allianz' chief economic advisor told CNBC's "Squawk Box."

"It's all outflows, so he's going to have a reality check with the balance of payments pretty soon, and that's going to have some consequences beyond Turkey," he said.

Turkey ordered the detention of 42 journalists on Monday, broadcaster NTV reported, under a crackdown that has targeted more than 60,000 people, drawing fire from the European Union.

The arrests or suspensions of soldiers, police, judges, civil servants and educators in response to the July 15-16 putsch have raised concerns among rights groups and Western countries, who fear Erdogan is capitalizing on it to tighten his grip on power.

EU Commission President Jean-Claude Juncker questioned Ankara's long-standing aspiration to join the EU.

The market is looking through this near-term turmoil and will continue to do so as long as investors believe central banks will insulate them from shocks with easy-money policy, El-Erian said.

"You can have a messy Turkey situation. You can have a messy Brexit situation. You can have messy Italian banks. You can have all this stuff adding up, but it's not going to reflect short term in the market," he said.

"Long term, we're building up for a lot more volatility down the road," he warned.

— Reuters contributed to this story.

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