The already fractious relations between the Nato partners have been further damaged recently by a dispute over the crackdown by the Turkish authorities following the failed coup last July.
Turkey not intimidated by German 'threats', says Erdogan
Turkey will not be intimidated by threats from Germany, President Recep Tayyip Erdogan said on Friday, as he stepped into an escalating row that risks developing into a full-blown crisis in a key bilateral relationship.
The already brittle relationship between the two Nato partners has been further damaged recently by a dispute over the crackdown, including mass detentions, by the Turkish authorities that followed a failed coup last July.
Several German nationals are among those being held and Berlin has warned its citizens that their safety cannot be guaranteed in Turkey and that consular access is not assured in case of their arrest.
In an unusually hard-hitting statement that swept aside any diplomatic niceties, the German foreign minister Sigmar Gabriel on Thursday also warned German firms against investment in Turkey and spoke of an "overhaul" of the entire relationship.
But in his first reaction to the latest twist in the crisis, Turkey's president Erdogan retorted that Germany does "not have the power to smear Turkey".
"They (Germany) cannot scare us with these threats, they should know this," he said in a speech in Istanbul.
The latest crisis was precipitated by a court order to remand in custody six human rights activists detained on an island off Istanbul. Among the six are Amnesty International's Turkey director Idil Eser and Berlin-based activist Peter Steudtner.
But Berlin was already furious over the jailing in February of Deniz Yucel, Turkey correspondent for Die Welt newspaper, who Mr Erdogan has personally denounced as a "terror agent".
Germany's finance minister Wolfgang Schaeuble even compared President Erdogan's Turkey with the former communist German Democratic Republic (GDR), accusing it of "arresting people arbitrarily".
"When you travelled there (the GDR), you knew, if something happens to you, nobody can help you," Mr Schaeuble said.
But Mr Erdogan declared Turkish courts were in fact "more independent" than German ones."Germany should sort itself out," he added, saying Germany had to account for the wanted Kurdish militants and coup suspects who Mr Erdogan says are hiding in Germany.
German newspaper Die Zeit reported that Turkey had handed Germany a list of 68 companies and individuals suspected of links to terror due to alleged contacts with the group led by exiled cleric Fethullah Gulen - the man the Turkish government blames for orchestrating last year's failed coup. Mr Gulen denies the charges.
Die Zeit said the businesses under suspicion ranged from carmaker Daimler to the chemicals giant BASF to a stall selling doner kebabs in western Germany.
But Mr Erdogan denied the claims, calling the reports "black propaganda" aimed at discouraging German companies from investing in Turkey.
"You have no power to darken Turkey," Erdogan said.
Turkish officials believe the row is linked to the forthcoming federal elections in Germany, in which Mr Gabriel will play a prominent role, as he is a senior figure in the Social Democratic Party. Though the SDP is currently in coalition with Angela Merkel's Chrisitian Democrats, the party will contest the election as her opponents.
Raising the stakes higher, Germany on Friday said it was reviewing all arms sales to Turkey as part of the overhaul in relations announced by |Mr Gabriel. That overhaul "covers all sectors, including defence exports policy," the economy ministry said.
Germany is home to three million ethnic Turks, around half of whom are eligible to vote in Turkish elections.
Tensions between Ankara and Berlin spiked in the spring over Germany's refusal to allow Mr Erodgan's party to hold rallies in the campaign for the referendum on expanding the president's powers. Mr Erdogan accusedMs Merkel's government of behaving like the Nazis.