Dubai’s debt and Eurozone crisis

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Night shot of Dubai Marina skyline
Night shot of Dubai Marina skyline. As Europeans grapple for a solution to the Eurozone quagmire — the experience of Dubai and the UAE examples some tantalizing options. – opines Zain Naeem. Photo- Daniel Cheong

Last year was plagued by the talks of Eurozone crisis. The need to save and protect the Euro with the creditworthiness of many of its fellow states was required, and even though some form of aid was provided the crisis has still not been averted. On the other hand, a similar case took place in the UAE. Dubai was near bankruptcy and needed critical funding in order to save it and Abu Dhabi stepped in to provide the necessary financing. Dubai will soon have to fund part of its debt that is due next year and is expected to pay back most of it due, thanks to the continued strengthening of economy and robustness in growth.

The debt was taken in the form of government borrowing. Abu Dhabi was the major investor in the issue and allowed Dubai to stay afloat. The key to see is that whether this can be applied to the Eurozone solution. The amount of aid required by Dubai was huge -of around $20 billion– but it was mostly paid in by just Abu Dhabi while in Europe there are more countries that can potentially provide the necessary financing. The size of the debt would mean that the solution is possible, at least theoretically.

The solution that was used, issuance of government debt, is also applicable as the countries in Europe can also sell most of their debt or restructure their debt and sell it off to the other stakeholders which will protect the Euro and would provide the bailout that the countries needed. The most blatant difference between the two problems is rather rooted in more fundamental elements; which is the fact that the economic growth in Dubai and the UAE cannot be replicated in any other region.

The returns in the GCC are much higher and based on ever expanding tourism and service industry; it cannot be matched by any other region in the world. The global financial crisis was a huge burden on the whole world and saw its impact in all the regions, however, the UAE was not only able to weather the storm, but was also able to get up on its own feet through its economic growth. Europe was not able to do this. The weight on its economy in addition to the pressure from the austerity measures meant that growth could not be initiated in a similar manner.

The second problem was the political and financial disparity. When it came to Dubai, the matters were discussed and political gains were sacrificed for economic development which is reaping its benefits now. Europe saw many of its leaders quarrel and bicker over the plans and dragging out the crisis meant that they lost both in the political and economic sphere in the end. The matter has gotten so bad that now even Germany, one of the most adamant supporter of the bailout plan, is seeing a fall in popularity for the plan altogether. With one fourth of Germany now supporting the anti-Euro party, a huge blow has been dealt to the crisis.

Many analysts always felt that the European experiment was doomed towards failure and that once tested, it would fail and it seems now that they were quite right. With Italy in tatters, Greece, Portugal and other states still under pressure and German and French economy feeling the pain of the crisis, a new path has to be chartered which can look at this issue with a new perspective and do what is required.

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