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The Dubai crisis worsens

Overnight there have been developments in the Dubai financial crisis with news that the Abu Dhabi leaders do not appear prepared to bail out the Dubai authorities lock stock and barrel. However, unofficially it looks as though the Abu Dhabi government may well look to cherry pick the best assets from Dubai and potentially gain control by guaranteeing debts and taking the pressure off the Dubai authorities.

However, the wider picture is starting to worsen with concerns that money markets investors are starting to tighten up as concerns grow that the situation could mushroom into potentially credit crunch part two. Whether this is a knee-jerk reaction to what is an ongoing issue remains to be seen but the more concern in the money markets and investment markets the more likely we will see a longer term impact. So what next?

In the short term, governments around the world need to find a solution to the Dubai issue and attempt to allay the major fears of worldwide investors. While the $80 billion debt (or the $60 billion debt, depending on who you listen to) may sound large, in the overall picture it is fairly small and it is more the impact on confidence which is worrying. Over the next few days we will see governments around the world come together to try and talk up investment markets and the money markets and attempt to at least rein in the worsening situation in Dubai.

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