Sanjeev Gupta
Sanjeev Gupta

From the Acropolis to the Burj

Recent reaction to the Greek economic crisis was striking in its dissimilarity to the reaction to Dubai’s economic woes in 2009. Dubai was effectively written off as a nation doomed to permanent decline whereas Greece has been rallied around. I guess it really does pay to be part of the European Union. German Chancellor Merkel said the EU bloc was “not going to leave Greece on its own”, but warned that apparently, and somewhat dubiously, “rules are rules and the rules must also be respected”. Quite how, remains to be seen.

After a deal brokered between the German chancellor, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou, the following emerged “euro area member states will take determined and coordinated action if needed to safeguard the financial stability in the euro area as a whole,” the 27 EU heads of state and government said in an agreed declaration.

EU President Herman Van Rompuy has said that Europe was sending Greece a “clear message of solidarity”, a line echoed by Germany and France. Papandreou, who had appealed beforehand for “psychological” and “political” support from his peers, said firm backing from Brussels was a clear warning to market speculators. He had the gumption to even warn that unless the new measures won the European Union and market backing, bringing down the cost of borrowing for his country, Greece would turn to the International Monetary Fund.

Such a move would obviously be highly unpalatable for the European Union, highlighting the bloc’s inability to manage the crisis on its own. A macabre attempt to “name and shame” unless help came, and came fast and unconditionally.

What a difference to the way the world at large and the media in particular decided to deal with the Dubai crisis.

Responsible publications chose to indulge in fanciful speculation and rich innuendos to highlight the embarrassment of the proud emirate and its ruling family, the Maktoums. To an onlooker, it has almost been an orchestrated campaign to blow the Dubai problem up into epic proportions rather than putting the correct context to the problem.

To only treat Dubai as some sort of spoilt child which had lost its marbles and making it the neighbour’s problem instead of also complimenting the role that the sheikdom has played in making trade and finance possible into hitherto uncharted territories — or for that matter the oasis it has created for the world`s people at large to come, enjoy and live in comfort and luxury — is not only short-sighted but smacks of unacceptable levels of hidden agendas and destructive opinion making.

Today Greece runs a public deficit in excess of 12% and runs the risk of exporting its own beleaguered status to run down the “in any case” shambolic EU and its politically inspired yet deeply divided monetary and economic union. And this financial irresponsibility when targets are set for member countries in the EU!

The EU’s claim to be a responsible and well-managed financial and economic system worthy of being measured on par with their American rivals is being tested. Thus Greece will escape censure and indignation as the EU will no doubt attempt to sweep it under its own carpet and avoid any undesired glare from the IMF that Greece otherwise might be tempted to attempt.

Yes — a deal to provide financial aid to Greece and stave off a broader crisis in the 27-nation bloc would be unprecedented, riding roughshod through rules forbidding a bailout.

Conversely, the economics and finance cognoscenti’s take on the Dubai sheikhs’ bond-repayment difficulties is that the world is unlikely to be shaken by it. At $80 billion, the entire debt of Dubai World — a firm wholly owned by Dubai’s royal sheikhs (aka the Dubai government) — is but a drop in the Burj Al Arab swimming pool when public debt in major countries is in tens of trillions of dollars.

Yet it is the pool that the world chose to reserve its choice expletives for? Understandably, in a nervous post-Lehman era, Dubai’s announcement in June 2009 that one of its conglomerates was seeking a debt standstill came as if it was a nuclear shock in the making. The world chose to deal with it as an apocalypse of sorts, a story of hubris that needed destroying and whipped up a frenzy of distrust in a region that was already much maligned and misunderstood.

Global public debt in 2010, according to recent analysis by Moody’s, will increase by 45% — yes, 45% — from its 2007 level and reach nearly $50 trillion. Nearly 80% of that jump will have been accounted for by the G-7 countries.

Will the G-7, plus other European countries (Greece and Ireland, for example) that have piled up massive post-crisis public debt not spook the markets at some point in time?

That is really the question that the world needs to focus on and let Dubai sort out its own problems with local banks and the significant sovereign backing it does have. The idea that Abu Dhabi or, for that matter, some other sovereign in the region must, almost as a given, cough up for all of Dubai’s malaise, is not only naïve at its best, but self-defeating and short-sighted. The region needs Dubai and it is in the region’s interest to make Dubai survive. But that does not automatically pave the way for explicit sovereign guarantees to kick in when none existed in the first place. Like everywhere else, the problem will be resolved through negotiations, transparency, pragmatism and good old financial engineering. Gladly sanity has returned and the various stakeholders are finally in a process of “give and take”, which should see some announcements soon.

It’s a salient aspect of Dubai that while it is expected to suffer with the rest of the world and therefore see drops in tourism, airline traffic, freight and services, its position in the region as a place to do business from is untouched and unchallenged. Dubai is in a region which continues with its supreme position and thus acts as its trade and financial centre hub for the fast growing behemoths in the East, the developing trends of the South (Africa) and the financial muscle of the Middle East. It means Dubai has a more-than-even chance of not only continuing with positive growth but also recovering faster than its critics might agree. Recent data actually points to an increase in activity in Dubai over the last quarter.

Admittedly managing the proven excesses will pull Dubai down for a while but the core of what already exists continues to flourish and will do so because of the businesses that exist and the needs that they create in the brash new emerging world.

Maybe we need to ask — what is good for the goose is not good for the gander? Why Greece will survive and not Dubai?