BERLIN: Gudrun Flieger tucks into a steaming bowl of bean stew at a soup kitchen in the well-to-do Berlin district of Charlottenburg. The 63-year-old pensioner has been a regular guest at the church-run meeting point since losing her job as a fitter at an electrical factory which went bankrupt in the late 1990s. “Without the soup kitchen and state help I’d be lost,” she said.

At a pawn shop on Karl Marx Strasse, in Neukolln, one of Berlin’s poorest districts where one in four people are unemployed and half of all children live in poverty, an elderly woman in her 70s, dressed in a fur coat, hoped to pawn a gold watch to help cover a heating bill. “It takes me back to when I used to go with my mother to the Reichstag in the days after the war and people sold watches and coffee beans on the black market to survive,” she said, giving only her first name, Isabel.

The two women, randomly encountered on opposite ends of Berlin on a freezing day this week, were among a growing number of Berliners stuck in a vicious circle of poverty, according to a study which showed that citizens of the German capital are more likely to live in poverty than anywhere else in the country.

A staggering 20 per cent per cent of Berliners are reliant on state support to survive, according to research by the Bertelsmann foundation. In contrast, in the rich southern state of Bavaria, only 5 per cent of people depend on the state.

From an economic viewpoint the city is in disarray, with a jobless rate of around 17 per cent and a debt mountain expected to total EUR63.5 billion this year. But the flip side to its troubled situation is the rise of a new and seemingly unstoppable creative class, which economic experts say has the potential to make the capital boom.

Realising early on that Berlin had little choice but to play to its strengths, its mayor Klaus Wowereit inadvertently coined the phrase “Berlin: arm, aber sexy” (poor, but sexy). The line hit a nerve and has become an unofficial slogan which now adorns T-shirts and bags. A mixture of cheap rents, empty spaces in central locations, and a level of tolerance and laissez-faire attitude which are hard to find elsewhere have helped lure a whole generation of creative figures who are helping to shape a new economy now worth an annual EUR17.5 billion, or more than 20 per cent of Berlin’s GDP.

Nowhere was the creative vibe more evident than at the “Bread and Butter” Berlin fashion show, held this week at the now defunct Tempelhof airport, which attracted international designers and fashion moguls. Among those contributing to the creative economy are the hundreds of British (who top the list of tourist numbers) and other European clubbers attracted by Berlin’s 250 nightclubs. They pile off cheap flights for overnight stays in the city, which they often spend entirely on the dance floor. Entrance and drinks cost a fraction of London prices.

At the Golden Gate club on the river Spree, Gerald Simpson, 45, is often to be found DJ-ing. The musician moved to Berlin as much to get away from the pressures of London.