-->07:01 09Jan2003 RTRS-FEATURE-Berlin struggles to end free-spending ways
By Philip Blenkinsop
BERLIN, Jan 9 (Reuters) - With a debt per capita more than double that of Argentina and rising, Germany's capital city is reluctantly waking up to the fact that it is living beyond its means.
Berlin owed a staggering 46 billion euros ($47.7 billion) at the end of last year and, according to the city's finance department, that figure should pass 60 billion euros during 2007. In 1991 its debt was a relatively modest nine billion euros.
The vision many economists and businesses had after the collapse of the Berlin Wall of a thriving metropolis of five million people appears a distant dream.
In November, Berlin formally announced its debts had reached crisis proportions and appealed for help from the central government and Germany's other federal states.
Berlin, weaned off large Cold War subsidies, could point to the example of the states of Bremen and Saarland, bailed out after they hit problems in the late 1980s, but received only a firm"No".
The central state was already providing support, Finance Minister Hans Eichel said, and it was time for Berlin to trim its spending.
ARGENTINE DEBT
Berlin's finance department acknowledges that its debt burden per capita is more than twice the level in Argentina, a country blighted by four years of recession, a recent debt default and with half of its population living in poverty.
In Berlin, unemployment rose to the highest level since 1990 reunification in December. However, while one in six of the workforce are without a job, there is little obvious sign of poverty, few beggars, soup kitchens or even charity stores.
The city government still supports three opera houses, two zoos and is planning a new airport to replace the three it already has.
This is symbolic of the problem. Berlin may have become one city a decade ago, but in some respects it is still spending as if it were two and is still planning for its vibrant future.
"We have 30 to 40 percent more personnel than equivalent federal states and that means costs are 30 to 40 percent higher, in our case 1.7 billion euros more," Thilo Sarrazin, the city's finance senator (minister), said in an interview with Reuters.
The city also pays around 1.6 billion euros more on housing subsidies than the average German state and faces an extra bill for its kindergartens, universities and its wealth of cultural institutions.
In 2001, Berlin was forced to bail out Bankgesellschaft Berlin at a cost of about two billion euros after huge real estate losses plunged the city-owned bank into the red. Its efforts to sell the bank were not helped when one of only two bidders withdrew in December.
On the income side, the Cold War subsidies required to prop up the capitalist and communist halves of the city have ended.
"Both sides were heavily subsidised. West Berlin received 15 billion marks (a year) and East Berlin, it seems, even more. All that has ended and, while there are certain other supports, they don't compensate," said Karl Brenke, economist at the Berlin-based DIW, one of Germany's six leading economic institutes.
STILL LIQUID
Sarrazin says Berlin's plight is not as perilous as that of Argentina now or of New York in 1975 when a fiscal crisis brought the city to the verge of bankruptcy.
New York's streets were rife with muggings and murders, buildings burned down as there was no money to pay firefighters' overtime and the police often turned a blind eye to crime in the last hour on duty, because they would not be paid for the paperwork that went beyond their shifts.
Berlin's figures dwarf those of 1975 New York which had debts of $1.2 billion, equivalent to about $4 billion today. However, Berlin's city services are not about to collapse.
Sarrazin says that is because the banks believe the other states and central government will ultimately bail Berlin out.
"That's the German way...We don't have sanctions. The only sanction is a stern look from me. It's not so pleasant, but it's hardly enough," he said.
However, a plea to clear the city's debts has fallen on deaf ears. Finance Minister Eichel has said 'no more' as central government struggles to rein in its own burgeoning budget deficit.
Berlin will take its request for a 40 billion euro bailout to the constitutional court in February, but in the meantime it is starting to draw in the purse strings. Reflecting its long-term problems, Moody's credit agency assigned an Aa3 rating, a notch below its top triple-A, to the city in January.
Sarrazin aims to cut Berlin's bills by two billion euros by 2006 and at least balance income and spending.
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