The bailouts during the financial crisis have had the perverse effect of reassuring investors that the state is always there when you need it. But Dubai proves that this might not always be the case.

Dubai World is not Dubai, and the company is not explicitly guaranteed by the state. Yet there was a widespread assumption not only that Dubai would stand behind Dubai World, but also that Abu Dhabi, Dubai’s richer sibling, was right behind Dubai. No so.

On which note, Britain is not in great shape either – yesterday, Morgan Stanley warned that next year it could become the first major economy to suffer a full-blown debt crisis. And who will stand behind the UK. In an extreme scenario Economists from Morgan Stanley said that if next year’s elections resulted in a hung Parliament, the country could face losing its AAA debt rating as investors panicked over whether the majority party had the authority to push through the fiscal tightening needed to get the UK’s finances back on track.

“In an extreme situation, a fiscal crisis could lead to some domestic capital flight, severe pound weakness and a sell-off in government bonds,” the Morgan Stanley economic report, written by Ronan Carr, Teun Draaisma, and Graham Secker, said.

So 2010 could be nearly as exciting as 2008.

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