Ireland is knee-deep in bust banks, negative equity and political uncertainty, says Nick Hood.

Dublin’s citizens seemed muffled up against more than just the chill March winds this week. Their empty wallets were also in need of some serious economic lagging.  With residential property prices in the capital down by up to 60%, every conversation was filled with horror stories about negative equity, told by depressed professionals and cabbies alike. Latest estimates suggest that Ireland has 316,000 new houses standing empty, a startling figure for a country with a population of only 4.5m.

The construction sector is in disarray. Tender prices have fallen by 17 per cent in the past twelve months and are now 27 per cent lower than in the middle of 2007. Worst hit is civil engineering, but both house building and commercial property development remain badly depressed. Experts talk of contracts being taken at a loss simply to keep builders’ doors open, suggesting that there will be many failures ahead and a further surge in unemployment.

Fears for tourism also abound, confirmed not just by the taxi drivers gloom at falling demand for their cheery chat, but by a room rate of just €140 a night for a luxury double at a prestigious five star downtown hotel. But with a pint of the black stuff costing around €8 and sterling falling through the floor, it’s not hard to see why there may be fewer Brits around, as golfers and stag parties seek out more affordable locations.

Even the safe haven of farming is struggling, with reductions in product prices hitting profits just as banks and other creditors are accused of hardening their attitude to risk in the sector - closing off overdraft facilities, calling in loans and paring back credit limits. Lending to agricultural businesses fell by 5% in the final quarter of 2009 alone.

Some issues are the same the world over. The Irish business pages are filled with screaming headlines on bank executives’ pay, while the ex-CEO of one bank is suing his former employer for €2.6m over the distress and harassment caused by his dismissal. The same bank had lent a total of €179m to its own directors before the financial music was finally stopped by the credit crunch.

Meanwhile, the jury is out on the newly-created National Asset Management Agency regime for working out the massive bad loans racked up by the banking sector. With a mere €77bn to be dealt with, it is to be hoped that the executive board currently being selected succeeds in its mission. The alternative is far too serious to be contemplated, despite the rampant cynicism of many commentators.

Unfortunately for those hoping for determined political action to pull Ireland out of the PIGS club of endangered Euro economies (that’s Portugal, Italy, Ireland, Greece and Spain), Brian Cowen’s embattled coalition suffered its fifth resignation in a month as Martin Cullen, the so-called Minister of Fun, quit for health reasons. It is now technically a minority government, pending three outstanding by-elections for Dáil seats.

But despite everything, there is a cheerful determination to make the best of a bad job, even if it is matched by a steely recognition that this is going to be a long haul.  The luck of the Irish may have run out for now, but nobody should bet against a resurgence in due course.

Nick Hood says Dubai remains reluctant to face its demons - and the worst may be yet to come.

Sixteen months since first experiencing Dubai’s financial mirage, the initial impression is that not much has changed in the Walter Mitty Gulf state. A romantic dinner for two at Pier Chic, looking out onto the graceful seven (yes, seven) star Burj Al Arab will cost the unwary host around $700 with a relatively average bottle of vino.  

All of the 46 restaurants at the Madinet Jumeirah complex were full, possibly signalling the last hurrah of the European tourists who, according to rumour, are starting to abandon the 'Disneyworld in the Desert' experience offered by this and the country’s other ‘deluxe’ leisure facilities.

Appropriate, then, that this should have been the chosen venue for an international conference of insolvency experts, who found themselves sharing BA business class on a Sunday evening with the serried ranks of the Dubai World restructuring team, returning for another week of hard toil trying to break through the cloak of denial that still obscures the reality of Dubai’s vast financial over-indulgence.

With Western newspapers commenting on the report by Moody’s that local banks faced $15bn exposure to Dubai World, it was curious to hear a senior Dubai official dismiss these stories as part of an American plot. The US, it seems, wants to pressurise governments in the Gulf to engage more proactively in the campaign to bring Iran to heel over its nuclear ambitions. It seems that conspiracy theory is now well practised in the region.

So all is not well, despite continued growth in the GCC area of 2.2% through the recession, a ‘minor’ correction to the average of over 6% between 2003 and 2008. The Dubai stock market fell 3% last week, but more revealing were the nervous expressions of hope that the Dubai International Boat Show might inject life into the moribund Middle East yacht market. When the super rich start going cold turkey on Bling, things must be tough.

Without any meaningful oil revenues of its own, Dubai is not a victim of energy price corrections, at least not directly; rather, it is simply suffering from its own extravagance. Forced now to play a high-stakes game of financial chicken with its sugar daddy up the highway in Abu Dhabi, it can only be hoped that the current tentative sense of reality will take a firmer hold.

In the meantime, relatively little pain is being felt by entrepreneurs meeting in plush hotel lobbies, or ex-pat professionals in their over-priced luxury offices in the Dubai International Financial Centre.  
The real problem for many of them is still to come, in the shape of worldwide Dubai-related carnage in the construction industry. Things are particularly bad in the UK as contractors, big and small alike, wake up to the nightmare of disputed contracts on abandoned projects in Dubai - projects that they rushed headlong into without proper consideration of the risks involved. Many of these deals were done without the protection of an international arbitration clause, leaving builders with the only option of suing for their unpaid millions in Shari’a courts. The sobbing is already audible - and for most, it will end in tears.