Berlin denied state bailout for EUR 60bn debt

19th October 2006, Comments 0 comments

19 October 2006, Berlin (dpa) - Germany's top court Thursday refused to sanction a government-funded multibillion dollar bailout for the nation's bankrupt capital. The court dismissed a suit filed by Germany's largest city, which is saddled with a 60-billion-euro (75-billion-dollar) debt. Berlin Mayor Klaus Wowereit said the city cannot repay the debt by itself and invoked a constitutional solidarity clause in a bid to win a bailout ruling from Germany's highest court. The capital had argued that it had go

19 October 2006

Berlin (dpa) - Germany's top court Thursday refused to sanction a government-funded multibillion dollar bailout for the nation's bankrupt capital.

The court dismissed a suit filed by Germany's largest city, which is saddled with a 60-billion-euro (75-billion-dollar) debt.

Berlin Mayor Klaus Wowereit said the city cannot repay the debt by itself and invoked a constitutional solidarity clause in a bid to win a bailout ruling from Germany's highest court.

The capital had argued that it had got into debt because the government had slashed subsidies after German unification in 1990.

But the federal constitutional court ruled that the massive debt was largely of the city's own making, but "in all probability" could be reduced if spending was brought under control.

The court said a bailout funded by the government and the wealthiest of Germany's 16 federal states was only envisaged in emergencies if there was no other way to ensure a state's continued existence.

If Berlin had won the case, wealthy states including Bavaria, Baden-Wuerttemberg as well as eastern Saxony state had threatened to dismantle the "Laenderfinanzausgleich" system which pumps funds from rich regions to poorer parts of Germany.

There have been allegations that Berlin's government - a coalition of Social Democrats with the former East German communists now called The Left Party - has not done enough to cut spending and privatize massive state holdings.

The court said the city could earn at least 5 billion euros if it sold the 270,000 apartments - 15 per cent of Berlin's total residential living space - that are under public ownership.

The city had sought the bailout to cover about half of Berlin's overall debt and promised to get its finances in order by 2020.

During the Cold War both West Berlin and East Berlin were heavily subsidized as showcases for their respective blocs.

But the almost 8 billion euros pumped annually into West Berlin were slashed to 2 billion euros per year by 1995.

Berlin's debt soared from 10 billion euros in 1991 to 60 billion euros at present, with interest payments adding 2.4 billion euros to the overall burden each year.

Berlin has a population of 3.4 million. Argentina, which defaulted on 80 billion dollars of its 150-billion-dollar-debt in 2001, has a population of 40 million.

DPA

Subject: German news

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