Economic Restructuring and the Making of a Financial Crisis

Abstract

Berlin's reinstatement as the capital of Germany raised great expectations of a transformation into a major European metropolis. However, the city has not been able to fulfil these expectations. Today, Berlin is being hit by a financial crisis that could have dramatic consequences for its future development prospects. This article outlines the main outcomes of Berlin's socio-economic restructuring in the 1990s. A tremendous loss of jobs in traditional industries contributed to a rise in unemployment and the spread of urban poverty. The city has been a prime playground for speculative real estate investment, which left behind a huge amount of unoccupied office space. On the positive side, new islands of economic growth have been developing in Berlin, particularly in knowledge-intensive economic activities. The Berlin government is now trying to consolidate the city's financial situation by making severe cuts in social expenditures, public services, education and research. This policy might damage the prospects of Berlin's few growth sectors in the field of knowledge-intensive activities.