Dubai’s successful but hideous entrepot model depends on the confidence capital markets, and as a rule markets don’t react to nasty shocks with a shake of the head and a song and dance routine. It’s as if plague has descended on every stock exchange in the world; investors are fleeing for safety. Overnight, shares in Asia collapsed between 3 and 5 percent, and the FTSE, Dax and Cac40 have opened around one percent down. Prepare for another black day.
Will this blip develop into crisis? As the FT’s leader points out, Dubai’s fellow emirate Abu Dhabi can cover its neighbour’s stated debt. That it hasn’t implies that either the Sheikh of Dubai has had too much sun or the debt is larger than alleged. It is too early to turn panic into pandemonium by heralding the coming of the double of dip.
How far are British banks exposed? Gordon Brown has been terribly keen to define British identity, and under his leadership we now have an answer: our pre-eminent national trait is a flair for investing in duds. J.P. Morgan report that HSBC’s liabilities are £17bn and RBS’s stands at £200m, and who knows how far Barclays (who described Dubai debt as a ‘good buy’ last week) are exposed. If the UAE decides against rescuing its brash junior member, will further demands be made on the UK taxpayer? Between you and me, I suspect we will get a share in the Beckhams' grotesque bungalow.
Yes, taxpayers: it's time to drop your trousers and grab your ankles again. Because the banks have now been given their "moral hazard pass" by this wonderful government, and we're about to keep banks in lucre.