LONDON European stock markets recovered lost ground on the morning of Friday (Nov. 27), after opening between 1 and 2 percent down on the previous close. The low opening prices had been a reaction to news that state-owned Dubai World had said it would delay repaying some of its debt by six months.
Asian stock markets had closed down 3 to 4 percent on the news on the previous day.
According to reports Dubai World had debts of $59 billion in August, almost three-quarters of the state of Dubai's total debt of $80 billion. The conglomerate's subsidiary Nakheel has been constructing constellations of islands off the Dubai coast as part of the city state's focus on trade and tourism.
The United Arab Emirates (UAE) is a federation of seven states situated in the southeast of the Arabian peninsula. Although each emirate is ruled as a separate country they join together as the UAE for a number of governmental issues including foreign affairs, security and defense.
The main concern is that a Dubai debt default could re-ignite the global financial crisis. Dubai has considerably less oil wealth than its neighbor Abu Dhabi, which is one reason Dubai has focused on tourism and invested in massive capital construction programs.
However, even if the global economy can shrug off any disruption, problems in Dubai could disrupt the local economy. Some are expecting Abu Dhabi to bail out Dubai and banks in the region are said to have large exposures to Dubai World.