Berlin’s financial woes deepen

The last thing Berlin Mayor Klaus Wowereit needs is more bills. Stuck in an economic slump with unemployment up to 17 percent, there is no easy way to cover the city-state's mounting debts.

But the Berlin Senate announced Monday that it intends to cover losses from the Bankgesellschaft Berlin, a bank in which the city-state holds a majority stake.

This does not mean Berlin is taking on more debt, directly, but it likely will take over old risks that will prove very costly.

Bankgesellschaft Berlin's real estate arm reported a shortfall of $1.5 billion for 2000 and an after-tax loss of $334 million for the first three quarters of 2001, Reuters reported.

Before Berlin can promise to cover the bank’s losses, the deal needs final approval locally and from the European Union's executive body, the European Commission.

EU officials await details of the Berlin government’s plan to reorganise the bank, due in Brussels early next year.

Difficult as the deal may be for the mayor and his Social Democratic Party (SPD), they are unlikely to take political heat for it.

Bankgesellschaft Berlin’s near-bankruptcy is one of the reasons Wowereit and his party have a grip on power in Berlin.

The conservatives with whom the SPD once ruled in coalition were chased out of office in June, facing corruption allegations related to the bank’s management.

The city-state owns roughly 81 percent of Bankgesellschaft Berlin.

With his ideological foes chased from power, Wowereit, a new mayor, is negotiating a power-sharing deal with old East Berlin’s ex-Communist party, the Party of Democratic Socialism (PDS).

If the SPD and PDS reach an agreement and a "red-red" coalition is formed, the duo of left-wing parties may be forced to steer a course of fiscal austerity, or risk even deeper debts.