Many saw the default of state-owned Dubai World on the terms of its debt late last year as a harbinger of things to come. Given the near default of Greece and Europe's broader debt crisis, it seems those people might have been onto something.
If that's true, then does Dubai World's settlement with its creditors foreshadow a better resolution to these issues that $1-trillion public rescues?
To backtrack, Dubai World, owned by the emirate, got into trouble when its property market cratered in the financial crisis. The conglomerate said in November it would seek a six-month stand still on its debt payments, roiling global financial markets that were just getting over the credit crunch. In December, Abu Dhabi, the capital of the United Arab Emirates, extended its profligate sister state a $10-billion lifeline, which calmed global investors.
Five months on, Dubai World has worked out a arrangement with its creditors. Rather than simply count on Abu Dhabi's reluctant generosity, Dubai gathered its creditors together and negotiated a settlement under which the creditors also will take a bit of pain -- which is only fitting since the risk of default is big part of the cost of playing in the debt markets.
Already, people are talking about this as a better way to eliminate the anxiety over Greece from the system. As I reported earlier, former Prime Minister Paul Martin, who in the 1990s pushed for a formal mechanism to treat sovereign default, is getting calls from people interested in reviving his idea.
Wonder if the exit strategies that Prime Minister Stephen Harper wants to make a priority at the Toronto summit could include a concept pioneered by a former adversary?