Yes Abu Dhabi will bail them out but at a price.

They want the Emirates airline and maybe the ports(both good profit makers).
Dubai is in no position to dictate terms.

They'll have to sell off a lot of assets too...the QE2 and Turnberry golf course have been mentioned for starters.

Could well spell the end of Godolphin as a force in world racing too.

Would you bail out your reckless younger brother and then let him waste money in the bookies?.

There seems to be a fair amount of misunderstanding about the UAE, and our relations to it re finance.

1) The terms UAE, Abu Dhabi and Dubai are not interchangable. Abu Dhabi and Dubai are two of the seven emirates that make up the United Arab Emirates.

2) The UAE is a very loose federation. It's only existed for 38 years. Although they share a currency, and some infrastructure, the seven emirates consider themselves to be different countries and have distinct and separate finances.

3) It is likely that Abu Dhabi, which is the vastly wealthy emirate that still has about 90 years worth of extractable oil, will bail Dubai out for the most part. They have not given guarentees about all debts. They will do this out of self-interest and will extract a high price from the Maktoum family, in terms not only of assets, but prestige and political power in the region. I suspect that the Nahyan family, who rule Abu Dhabi, might like to wrest Dubai's position as a financial centre from it.

4) Abu Dhabi did not bail out Sharjah when that emirate was in trouble. It had to turn to Saudi Arabia for financial assistance. It has paid a heavy price for their help though, as the quid pro quo of the funding was that Sharjah roll back the liberalization that it had conducted in the last decade or so, and revert to the less tolerant policies of Islamic conservatism. Such conditions would be a disaster for Dubai, as it is heavily dependent on its ex-pat professional class.

5) It is partly the FSA and Bank of England's fault that British banks are so exposed. In the light of the Lehman Brothers crash and bank bailouts, British regulators stipulated that banks should reduce their exposure to risk by holding more assets in (guess what) 'safer' sovereign wealth fund issued bonds and similar products. Hilariously, because all the banks had to increase their exposure to such instruments (and thus drove demand), the face value of these assets was artificially inflated into the bubble that has now burst. Nice one, regulators!! Way to go!

6) The call for tighter regulation would be tricky to pull off, as finances in Middle Eastern economies are notoriously opaque. I have friends who are lawyers in both Abu Dhabi and Dubai, and conducting due diligence is apparently a complete nightmare. In some cases it is even difficult to verify exactly which individuals you are dealing with. The Emiratis have an expectation that multi-million pound deals should be conducted with less background checks than we would expect to join our local library. There is a kind of 'my word is my bond' culture which works fine if everyone plays it straight, as used to happen (for the most part). There has been so much money swilling around though that nefarious types have become more brazen, and couldn't care less about the loss of face involved with being dishonest or not following through on undertakings.

7) There is no clear distinction of where the Maktoum family's wealth ends and Dubai's sovereign wealth begins. Not really a problem unless Dubai completely defaults on all of it's debts and the ruling family decide to take their assets and run, which seems extremely unlikely.

8) Dubai itself has little extractable oil left. Extraction (as opposed to refinement) make up about 3% of GDP.

Here, have a glimpse at the real Dubai.

http://www.independent.co.uk/opinion/commentators/johann-hari/the-dark-side-of-dubai-1664368.html

I guess the most relevant issue regards what is going on in the UAE, is that this will effectively mirror what we should expect within the Eurozone of the EU in years to come. The IMF have been the backstop when things have gone pear shaped in the past for individual nations within todays EU. That is unlikely to be the case in the future.

If Abu Dhabi are now trying to exert influence over Dubai, then we should expect to see the EU to directly interfere with any country not playing ball. Freedom to raise your own taxes? Freedom to spend those taxes as you wish? Freedom to raise debt?

Todays soveriegn debt has become the EU's debt.

I think that's probably a fair post Lufcwaffe, barring the last sentence which is hyperbole (imo)

History maker

Fact is Dubais problem is a property problem. The thousands of investors that turned up in Dubai to buy property off of plan have had the rug pulled from beneath them.

If you think amateurs were responsible for the UK property debacle then times it by ten where Dubai is concerned. Problem with Dubai is that it is well to do middle class people that have been stung.

People were buying properties on the palm for £250k a few years back , and these properties were no where near finished and were being sold on for £500k profit. Peopel were gearing up to extreme levels. Flats being sold of plan for £150 k and being sold before an instament was due for £50k profit . Things changed, and the law changed. People could no longer sell before they had made several instaments, banks stopped lending, so those that wanted to sell before instaments were due were left holdingh the baby!! These investors have BEEN advised to simply not make the additional payments. Apparently legally they can just walk away. There are thousands of these people. What price the empty property/development now?

The property developers expecting billions in instalments are not recieving them, and they are doing nothing to chase the investors. Apparently, legally they can do nothing if the buyer lives abroad. Those that lived in Dubai have long since left, and they can not chase them either. That is why there are hundreds of cars left with keys in ignition at airport every week.