Bailing out Berlin

18th October 2006, Comments 0 comments

Germany's capital is bankrupt and desperately in need of cash to fill its empty coffers. But will Germany’s federal states shell out for their impecunious neighbour? Leon Mangasarian looks at the capital's chances of being refloated.

Germany's capital is bankrupt and a high court is due to rule this Thursday whether it should be given a multi-billion euro bailout funded by the federal government and wealthier states in the country.

"Berlin is poor but sexy," is how the city's mayor, Klaus Wowereit, tries to put a positive spin on the staggering 60 billion euro (75 billion dollar) debt saddling the metropole.

Hey, what's wrong with being poor but sexy?

Wowereit, who is famous for rubbing shoulders with the rich and famous in Berlin's social scene, says the city cannot repay the debt by itself and has invoked a constitutional solidarity clause in a bid to win a bailout ruling from Germany's highest court.

To put the depth of Berlin's problems into global perspective, consider that the city has just 3.4 million people. Argentina, which defaulted on 80 billion dollars of its 150-billion-dollar debt in 2001, has a population of 40 million.

Tired of handouts

The federal government and most of Germany's 16 federal states are furious over the Berlin government's move.

Wealthy states including Bavaria, Baden-Wuerttemberg as well as eastern Saxony state are now threatening to dismantle what is known as the "Laenderfinanzausgleich" system which pumps funds from rich regions to poorer parts of Germany.

"If worst comes to worst, the badly-run states in Germany will get billions in aid while the federal government seeks to skim off funds from the better run states," said the Frankfurter Allgemeine Zeitung newspaper.

The prosperous states are demanding that if Berlin wins the court case they should be able to appoint a "forced adminstration" for the city and parachute in a budget czar to get spending under control.

Not keen on cuts

There are 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.

For example, Wowereit's SPD demands the city keep at least 270,000 apartments - 15 per cent of Berlin's total residential living space - under public ownership.

Berlin also owns eight sprawling farming estates outside the city with 3,000 hectares (7,410 acres) of land and 2,500 milk cows.

"Berlin does not have to sell and has no intention of selling," declared Wowereit earlier this week.

Tightening the belt

Some lower grade objects the city has put on the market have failed to find buyers, including a country house formerly owned by Nazi propaganda minister Joseph Goebbels.

The city also continues to finance numerous theatres and two complete zoos.

But Berlin's tough-minded finance minister, Theo Sarrazin, has won the respect of many Berlin critics for pushing through unpopular measures.

Civil servant salaries have been cut, public housing spending has been reduced and subsidies for cultural events have been trimmed.


Berlin officials are upbeat on prospects of winning their court case. Germany's other two poorest states, the Saarland and city-state Bremen, won a similar lawsuit in 1992 and received a cool 15 billion euros in federal payouts.

However, as the Frankfurter Allgemeine Zeitung noted: "Despite this, their financial situation has not gotten better and they want more money."

Wowereit wants the bailout to cover about half of Berlin's overall debt and vows the city will get its finances in order by 2020.

Too much spending on the Spree

Berlin got into its mess by failing to put a brake on spending following the 1990 German reunification.

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.

"Despite thi

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