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Video: Abu Dhabi bails out Dubai

There will be no Dubai sovereign default. The government of oil-rich Abu Dhabi surprised investors this morning in announcing a $10 billion rescue package to pay for upcoming obligations of embattled Dubai World.

Below Richard Stovin-Bradford of the Financial Times speaks about Abu Dhabi’s decision to finally come to Dubai World’s rescue.  I share his view that the UAE was not prepared for the knock-on effects a Dubai World default would have. Fearing the worst, they have now stepped in to stem the tide, something Citi Chief Economist Willem Buiter feels is inappropriate

The juxtaposition is interesting – referencing Buiter’s comments on Dubai World in a clip that is an add-on to a piece on Citi’s own rescue by government. Irrespective of what occurs now, the damage is done.  Dubai will still need to close its large fiscal deficit and tackle its mountainous $100 billion debt problem.

The next actor to watch is Greece, as they are keen to show their commitment to some degree of fiscal austerity as well. Unlike Dubai, unless they demonstrate a willingness to reduce the government budget deficit, they will be receiving no assistance.

The Dubai video of Stovin-Bradford from Bloomberg is embedded below.

Below is another Bloomberg video, this time of David Buik of BGC Partners with a different take on events.  He notes the marked improvement in credit default swaps, showing that the markets are encouraged by the Abu Dhabi move.

Sources

Abu Dhabi Gives Dubai $10 Billion to Help Pay Debt – NYTimes.com

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.