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Confusion in Dubai

The Dubai authorities have injected a large amount of confusion into worldwide money markets after the government refused to guarantee the debts of Dubai World which many believed had a direct connection to the Dubai authorities. The company has built up a debt pile which is now standing at £36 billion and the Dubai government believes that lenders should feel part of the pain rather than the authorities step in to bail out the company.

This is not what the money markets and investment markets wanted to hear and we saw the UK market fall further after a brief rally on Friday. There is concern that the government is distancing itself from the debt mountain which is being built up by "connected parties" and so far the Abu Dhabi authorities have refused to step in to save the day. The situation has affected worldwide stock markets and there is concern regarding further enormous write-offs for European banks.

While the UK government has refused to acknowledge this is a potentially enormous problem there is concern behind the scenes about the possible repercussions. If the situation is not resolved in the short to medium term this has the potential to create a domino effect bringing down weakened companies in the process.

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