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FINANCIAL CRISIS

Stockholm falls as Dubai shocks global markets

The Stockholm stock exchange fell by 3.1 percent on Thursday in response to an announcement that Dubai World has requested deferment on its $59 billion mountain of debt.

The shockwaves reverberated across the globe with the British pound and UK banks taking a big hit in afternoon trading.

Insurance premiums on Dubai-related debt spiralled on Thursday in response to the announcement that the emirate’s holding company, behind much of the spectacular property boom in the territory in recent years, was having trouble meeting debt payments.

Insurance on a five-year $10 million loan to Dubai is now running at over $500,000 per annum, Reuters reports.

While Swedish banks are not overly exposed to Dubai and Middle Eastern markets the emirate’s financial tentacles extend to the Stockholm exchange.

Dubai’s holding firm Borse Dubai owns for example a fifth of Nasdaq OMX, the firm which operates the Stockholm exchange.

“This is nothing that affects either Nasdaq OMX or the Stockholm exchange,” said Carl Norell, a spokesperson for the exchange, to news agency TT.

Asian markets also felt the financial chill from Dubai overnight with the Nikkei 225 down 3.2 percent, the China Shanghai Composite down 2.2 percent and the Hong Kong Hang Seng dropping 4.3 percent.

With the US exchanges closed for the Thanksgiving Day holiday it was difficult to gauge Wall Street’s reaction to the news.

Dubai World has asked its creditors for respite until May 30th 2010 in order to restructure its balance sheet.

An eventual bankruptcy would have extensive consequences, the UK Financial Times warned on Thursday. The total debts accumulated by Dubai are thought to exceed $80 billion.

The head of Sweden’s Riksbanken, Stefan Ingves, said on Thursday that it is too early to judge the situation.

“Swedish banks are not that big in that part of the world, so it will hardly be a great concern for Swedish banks,” he said.

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COVID-19

Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.

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