The fall of the Berlin Wall was not just a challenge for the people, for business and for society – it was also a challenge for financial policy. None of the established (West German) federal states saw such radical changes in the structure of the budget as Berlin. The national government abolished its subsidies to the federal state within just a few years. Instead, Berlin now participates in the inter-state fiscal adjustment system. As a result, Berlin lost a fifth of its income. Added to which, finance had to be provided to enable the two halves of the city to grow together and to modernise East Berlin’s infrastructure and utilities – to mention just a few areas. In 1999, Berlin drastically reduced its expenditure for the fourth year in succession. In 1995, more than a quarter of the budget had to be financed by new loans and by selling federal state assets; in 1999 this only applies to one eighth of the budget. For the first time the budget for 2001 passed by the Senate provides for total expenditure amounting to less than 40 billion DM (Budget 2000: 40.8 billion). The austerity plan will be pursued consistently in the next few years.