According to this article Berlin seems to be a strange capital city when it comes to debt:

In almost every European country the capital is the engine of the economy. But a new study shows there is one exception to this rule.

The study by the Cologne Institute for Economic Research looked at how severely the income per head in a country would be hit if it had to survive without its capital. The results showed that across Europe, capital cities were the focal points of their countries’ economies.


If Berlin were cut adrift from the rest of the Bundesrepublik, the average German would become 0.2 percent wealthier.

In 2015, the capital received €3.61 billion in subsidies, the most of any of the German states. The majority of this money came from wealthy Bavaria, which paid €5.45 billion of the total €9.6 billion which rich states gave to poorer ones, ARD reported in March.

I am wondering why this exception?

Question: Why does Berlin have debt issues in opposition to many other European capital cities?

  • Does anyone have a reference to the original study? I couldn't find it on the mentioned webpage. – Basileios May 8 '19 at 18:10

During the Cold War, Germany was divided into three parts.

There was the FRG, previously the US, UK and French occupation zones. There was the GDR, formerly the Soviet occupation zone and the Soviet sector of Berlin. And there were the three Western sectors of Berlin, legally not quite part of the FRG and not quite apart from it.

Surface transport to West Berlin went through the GDR, which always complicated things. There were massive tax subsidies to keep West Berlin going as a shining beacon between the Communist lands. Yet industry did not go to West Berlin.

With Reunification, East and West Berlin were reunified as well. The five East German states, the Neue Länder, are still economically weaker than the West German states. Berlin is a mixture between the two.

In addition, there are a couple of "relatively small" issues which add up at the level of a city with 3 or 4 million people.

  • A bank scandal in 2001 cost Berlin billions.
  • Berlin provides "services" like museums, theaters, transportation hubs, and jobs to surrounding municipalities in Brandenburg. People who work in Berlin live in Brandenburg and pay taxes there.
  • Berlin claims that running a capital has costs which are only partly compensated from the Federal budget. Embassies must be guarded. There are more political demonstrations than average.
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    So, economically speaking the wall's effects are still around us. Thanks for quick answer. – Alexei May 3 '19 at 14:45
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    @Alexei: The effects will be around for another few decades. Three small details seem missing in the answer. One is that Bonn used to be the capital of West Germany. The next is that there's no reason for a capital city to be the largest or most important -- e.g. Washington DC, Ottawa, Bern, Canberra, Wellington, and many others. The last is that economic activity in the former HRE was spread throughout Germany's territory, in part because it de facto had many "capitals". – Denis de Bernardy May 5 '19 at 6:13
  • Some tidbit I learned at university: The GDR distributed subsidies to cities and regions as loans from the central bank (without any expectation that the money would be payed back). When the banks where privatised after unification, those subsidies were treated as regular loands, and many cities including Berlin suddenly found that they owed private companies large sums. – Eike Pierstorff Jul 17 '20 at 13:15

To continue what o.m. said, after WWII, the center of German banking was Frankfurt (on the river Main). Also the main stock exchange has been there since long before that. After reunification, banks did not simply move to Berlin simply because became the capital again. The same goes for many other big companies. Consider this map of where Germany's biggest companies are headquartered: https://upload.wikimedia.org/wikipedia/de/7/7b/Hauptsitze_Dax-Unternehmen_%282010%29.png (DAX is the main stock index). Again, companies must have some serious reasons to move. It is not only all of their employees that would have to come along, there is also an ecosystem surrounding them.

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    Is this thd reason Berlin lags behind other capital cities? If that's your argument, please elaborate by comparing with other capitals. – JJJ May 8 '19 at 13:10

I would like to hypothesize that in large parts this can be explained due to the high ratio of public sector jobs over private sector jobs for Berlin as compared to many other German and European cities. In Switzerland a similar situation exists for the capital city Bern. Does anyone have a reference to the original study? I couldn't find it. To me it seems as if not all European cities have been studied.

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    Can you elaborate on the public / private sector jobs? Generally, answers are not supposed to include different questions, but the first part of your answer could be extended with some data / articles. – JJJ May 4 '19 at 21:12
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    I'm sorry, but as long as this answer has no data to support this hypothesis, this answer is not very useful to the visitors of this website. – Philipp May 5 '19 at 9:41
  • What bothers me is that the article mentioned does not have a reference to the original study. Since I could not comment, I thought I write up an answer. At least I can comment on my own post. But yes, at the moment I can not support my hypothesis with data, that's why I called it a hypothesis. Next time I will try to better follow the rules. Feel free to moderate and remove my answer. – Basileios May 5 '19 at 17:17
  • I would appreciate if someone can raise my question as a comment on the question. A reference to an article that doesn't mention the source is not very trustworthy. – Basileios May 5 '19 at 17:18

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