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Germany

Formerly 'poor but sexy,' Berlin is now booming

"Poor but sexy" is how Berlin's mayor, Klaus Wowereit, described the German capital a decade ago. Now the city’s economy is booming and the books are balanced. But success also has its downsides.

In mid-November, the German government proudly presented Berlin's latest economic figures: the city's budget until 2015 is balanced, and debts are a thing of the past. "Berlin has done its homework," said Richard Meng, spokesman for the Berlin Senate.

For many, the news came as a surprise. Berlin has been seen as cool and dynamic for a long time - but also financially flimsy. And not just since the fiasco with the new airport construction, which has been dragged out endlessly and has become ever more expensive.

Berlinhas been financially dependent on Germany's richer states for many years. Still in the first half of 2013, Bavaria, Hesse and Baden-Württemberg all transferred a total of nearly 2 billion euros ($2.7 billion) to the capital as part of the fiscal equalization payments which ensure that states don't diverge too far from each other economically

Magnet for adventurers, creative class

But recently, Berlin's tax revenues have been overflowing. If the estimates are true, the city could even earn 400 million euros more than it spends in the coming year. One reason for the success: the booming tourism.

Tourism has become the city's second-largest industry, with 25 million overnight stays per year, according to Meng. "That puts us at number three, after Paris and London. And, of course, that generates jobs and money for the city," he added.

A couple in front of the Cathedral in Berlin. (Photo: dpa - Bildfunk)

Berlin is a magnet for tourists, like this young couple at the Berlin Cathedral

Many don't just come to visit Berlin - they decide to stay and make a life here. The capital is growing by nearly 30,000 residents every year - despite the fact that Germany's population is actually stagnating. This trend can also be seen in other German cities, but Meng is still convinced that his city has a special appeal.

"Curiosity about Berlin is huge, especially among the young," he told DW. "The city attracts many people who want to experience something special, the ones who want to be creative or want to develop something."

But this is not only true for those seeking adventure. In recent years, an increasing number of large, well-known international companies and organizations have moved their headquarters to Berlin. One such example is software giant Microsoft, which has made itself at home on four floors in a 3,000 square-meter city center office on the prestigious Unter den Linden boulevard.

Construction site in Berlin-Mitte. (Photo: Jan Woitas pixel)

Construction is booming in areas like the popular Berlin-Mitte

City of start-ups

Another reason for the sudden windfall is the countless small Internet and media companies have been established in the capital in recent years. "Berlin plays a major role internationally, even in regard to the Internet scene," said Michael Bahrke, of the Cologne Institute for Economic Research (IW). "There is no other place in Germany or even worldwide that offers the same conditions for working in this sector."

About 4 percent of value added in Berlin now comes from the IT and Internet sector - one of the great industries of the future. And then there are the countless clubs, bars and little designer shops opening in trendy districts such as Friedrichshain and Neukölln nearly every day.

It's a true start-up boom, which is also reflected in numbers. The economic performance of Berlin has grown by 17 percent since 2005 - even more than in traditionally economically strong states such as Bavaria. This creates jobs, during the same time period more than in any other state.

Even wages are rising - not surprising, says Bahrke. The city is now taking advantage of a potential which had been there for years.

Downside of the boom

But all the positive numbers have negative consequences as well: dramatically increasing rents for example. Real estate prices have skyrocketed in recent years, and are attracting more speculators.

"The better the condition of the city, the more the debate becomes about who wants to come here," said Meng. "Then people with money will come, and then even those people who have been living here a long time feel threatened since they don't have as much money."

House entrance in Berlin-Friedrichshain. (Photo: dpa - Report)

With increasing rents and prices, are long-time locals losing out?

Local residents are already being moved out of trendy quarters by wealthy new Berliners, but also due to the construction of new apartments and hotels. Meng says the government must devote itself to new tasks, like affordable housing, now that there is more money.

"There are many things where a growing population creates new problems: kindergarten places and schools are just a few. And politics must react to that, of course," he said.

Even the economist Michael Bahrke warns that the positive development may only benefit parts of the city. There's a risk that the social divide in Berlin could increase, with a growing number of wealthy living in the center and more and more low-income and unemployed residents pushed to the poor neighborhoods on the outskirts. According to Bahrke, the government act now to ensure that all Berliners benefit from the success of their city.

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