Dubai is given $10bn bailout by Abu Dhabi

ABU DHABI cheered markets yesterday by extending a $10 billion bailout to Dubai, enabling its fellow emirate to avoid an embarrassing slide into default by troubled state-owned property developer Nakheel.

And in Europe, Greek prime minister George Papandreou last night pledged “radical” action to tackle the country’s budget deficit a week after ratings agency Fitch withdrew its A rating from the country sovereign debt.

News of the Dubai bailout sent international stock markets higher yesterday, led by banks. However, there was little reaction on the Dublin market.

The move by the oil-rich capital of the United Arab Emirates ended three weeks of market turmoil following Dubai’s request to freeze payments on $26 billion in debt held by state-owned conglomerate Dubai World, Nakheel’s parent.

The Dubai government said it would use the funds to settle a $4.1 billion Nakheel sukuk – Islamic bond – due yesterday and for interest payments and working capital while Dubai World negotiated a debt restructuring.

However, analysts warned that concerns remained about the conglomerate’s restructuring and other parts of the emirate’s commercial empire.

In Greece, as officials struggle to convince investors they can get to grips with public finances, Mr Papandreou said in a speech in Athens: “In the next three months we will take those decisions which weren’t taken for decades.”

The prime minister, who came to power in October, said many choices would be “painful”, although he pledged to protect poorer and middle-income Greeks.

Greece urgently needs to restore its international credibility following a downgrade last week by Fitch to BBB plus, and a warning by Standard Poor’s of a possible downgrade.

Moody’s will visit Athens this week, raising fears that Greece will suffer another downgrade as it gears up to borrow another €50 billion on top of a record €60 billion this year.