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Germany

Berlin’s Budget Blues

Berlin is bankrupt. The city’s debt already equals the gross national product of Morocco. Cutting back on the costs of running the unified capital will be a painful process.

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The price of freedom

The city council has proposed some drastic measures to curb the spiralling costs of running the capital, which has been sliding into debt ever since unification.

Berlin’s ruling coalition, made up of Chancellor Gerhard Schröder’s Social Democrats (SPD) and the reformed communists’ party of the former German Democratic Republic, (PDS) finally agreed to the package after several rounds of marathon talks.

The package cuts over two billion euro from the budget between now and 2006.

On the block are the arts, education and heritage, cuts that undermine Berlin’s ambition to attract more investment and become the new capital of Europe.

Balancing the books

It is the most ambitious cost-cutting plan in Berlin’s history. Even so, the cuts are only putting the lid on further borrowing to the end of 2006 – they will not reduce the actual debts totalling around 40 billion euro.

"We have achieved savings...but there are absolutely no grounds to celebrate," Mayor Klaus Wowereit told a news conference. "First because many people in this city will be hard hit by these measures and second because the problems of this city are by no means over."

Wowereit added that he hopes to negotiate a financial lifeline from the federal government, something the city believes is the only way to avoid sinking further into debt in the long term.

Under the axe

Fifteen thousand civil service jobs will go, eleven city swimming pools will close, two of the three ballet companies are merging and support for the state library will be slashed. Furthermore, all funding next year for the restoration of the city's historical Museum Island will be cut.

Over the next two years spending will be cut by some 330 million euro. That still falls short of the 700 million euro savings target set by Berlin’s finance minister Thilo Sarrazin.

"We agreed to 370 million euro less than we had hoped to," Sarrazin said and described it as a draft budget that reached the limits of what Berlin could save "without major cuts."

Despite the pain, the budget may not be enough to stave off bankruptcy without the help of the federal government. It certainly will not please the voters. Berlin is not out of trouble yet.