Why the German economy is turning around
The economic landscape of Berlin has changed radically since the reunification of Berlin and Germany in 1990. Both the centrally planned economy of East Berlin and the industry of West Berlin, which had received generous subsidies from the West German state during the Cold War, suffered severely from the shock of the free market. With the unemployment rate approaching 20%, Berlin is still reeling from mass lay-offs in the 1990s.
It’s not all gloom and doom, though. Although much heavy industry is leaving Berlin for eleswhere in Germany or eastern Europe, Berlin is experiencing a renaissance in service industries, logistics and media, as well as high-skills industries such as biotech, transport technology and IT. Due to its low rents, attractive lifestyle and renewed status as the German capital, Berlin has been able to convince several companies to move their German or European headquarters here—MTV, Universal Music, Coca Cola and Bombardier Transportation to name a few recent newcomers to the city. The Berlin state government has played an active role in attracting business with various forms of subsidies.
Tourism is also booming—Berlin is now the most popular destination in Germany and the fourth most popular city to visit in Europe. This rise can be attributed to growing international awarness of Berlin’s huge cultural offering—from museums to opera to nightlife—as well as the many major cultural trade events such as the Berlin International Film Festival, the Popkomm music fair and the Bread & Butter fashion fair. New low-budget airline routes to Berlin are also contributing to the flood of tourists. The FIFA World Cup 2006 is also expected to have a long-term positive impact on Berlin’s economy.
Hotel stays rose 16% in 2004 as compared to 2003, so it’s not surprising that one luxury hotel after the other is being built. The new Berlin-Brandenburg International airport, which is scheduled for completion around 2010, should also provide a boost.
Despite a slump in the construction industry (which saw such a boom immediately after reunification), international investors continue to pour money into large-scale real-estate projects. One such development, the new Arena am Ostbahnhof, a massive £100 million entertainment complex, was financed by American billionaire Phil Anschutz, who already owns the city’s most successful ice hockey team. All in all, the German economy appears to be turning around after several years of sluggish growth, spending cutbacks and costly mass unemployment in the eastern half of the country. Whether the new CDU-SPD coalition government, headed by chancellor Angela Merkel, will be able to push through the long-term structural reforms needed to get the German economy really humming again remains to be seen.