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Shiny Dubai

While most American's were munching (hopefully gratefully) on turkey and stuffing, events halfway around the globe were once again roiling financial markets worldwide. Today the NASDAQ and the New York Stock Exchange were closed in observance of the Thanksgiving holiday. In a dubiously timed move, Dubai, the most gleaming of the United Arab Emirates, stunned bankers and investors by asking debt holders to allow its Dubai World, the government’s main investment vehicle, and Nakheel, the emirate’s property development unit, to suspend its debt repayments for six months.

Stock markets across the globe reacted sharply negatively: the FTSE 100 index in London lost 3.18 percent, the DAX index in Germany fell 3.25 percent and the CAC-40 index in France lost 3.41 percent. Heavily exposed companies also took a hit including banks: HSBC Holdings, Royal Bank of Scotland, Barclays, Deutsche Bank and ING Group which all declined by 3% or more, also hurting, at least in stock value, were Airbus, LVMH Moët Hennessy, Daimler and BMW, all highly vulnerable to the vagaries of the Middle East's noveau riche.

The Dubai government’s total debt is estimated at about $80 billion. Much of the problem stems from the bursting of a property bubble. Fortunately, in terms of contagion, as much as 80% of the debt may be locally held. But it bodes badly for states throughout the Middle East, and could pose a dangerous risk to political stability in places where massive government handouts keep a lid on disaffection and potentially volatile unemployed and underemployed youth.

One more sign that the global economy is a long way from out of the proverbial woods. America should consider itself lucky if the worst has already passed.

Labels: Economy, Middle East, Politics