Arrests in Turkish coup probe-involving a plot to overthrow the gov. and instill Shariah Law

Two retired Turkish army generals were among 24 people arrested on Tuesday in an investigation into an alleged plot to overthrow the government, adding to tensions that have paralysed political life in Ankara and undermined the financial markets.

The arrests came just hours before Turkey’s chief prosecutor went to the ­constitutional court to set out his case that the ruling in which has its roots in political Islam, should be shut down because it is trying to impose sharia law.

The AKP case and the coup investigation have spooked investors. Turkish stocks closed 6 per cent lower on Tuesday as local investors continued to sell and foreign buyers stayed on the sidelines. The lira – which some analysts say is overvalued by up to 25 per cent – was also weaker against the euro.

The main reason for the sell-off was weaker European markets but the clash between the government and the secular establishment is undermining confidence in Turkish assets. Foreign investors own about 70 per cent of the Istanbul stock market. Analysts say they are refusing to bid for Turkish stocks because they have too many other worries – such as the credit squeeze and soaring oil prices.

Guldem Atabay, chief economist at Ekspres Invest in Istanbul, said the closure of the AKP had already been priced in to Turkish markets but longer-term worries were also weighing on investor sentiment. “Turkey’s political stability is over,” Ms Atabay said. “It will not be restored in the short or medium term.”

Cyprus hopes

Alexander Downer, the former Australian foreign minister, confirmed on Tuesday that he would become United Nations special envoy to the Cyprus peace process, quitting domestic politics this week, Reuters reports from Canberra.

“It’s not going to be a cakewalk,” Mr Downer said. “We played our part in Iraq and Afghanistan. Why not try to fix up Cyprus as well?”

A frequent critic of the UN, Mr Downer was Australia’s longest-serving foreign minister before the conservative government of John Howard lost in elections last November.

The Cyprus position is to be part-time.

The alleged plot to overthrow the government is tied to militant nationalists and “Kemalists” – ardent die-hard followers of Mustafa Kemal Atatürk, the founder of modern Turkey. He was an arch-secularist who banished Islam from Turkish public life. His most ardent followers claim the AKP is trying to reverse that achievement.

Several retired armed forces personnel have been detained in the investigation, which was launched in June last year after explosives were found in the Istanbul home of a retired general. Generals Hursit Tolon and Sener Eruygur, arrested on Tuesday, are high-profile figures, considerably raising the stakes in the investigation. Other prominent figures held in the ­early-morning swoop were Mustafa Balbay, the Ankara bureau chief of Cumhuriyet, a daily newspaper that is the bible of militant secularism, and Sinan Aygun, chairman of the Ankara Chamber of Commerce.

They are among up to 50 people so far implicated in a group called Ergenekon, the ancient name of the part of central Asia from which the Turks originated.

Recep Tayyip Erdogan, Turkey’s prime minister, said “darkness would soon be illuminated” surrounding the alleged plot.

Wolfango Piccoli, an analyst at Eurasia Group in London, said in a note to ­clients that secularists ­suspected the probe was an attempt to harm the reputation of the military. “A reaction by the military by means of a strong statement is likely,” he said, a move that could further inflame the situation.

Turkey’s military has ousted four governments from power since 1960. It failed last year to prevent the appointment of Abdullah Gul, a senior AKP leader, as president. But its intervention sparked a political crisis and a general election that the party won last July in a landslide.