Berlin has been Germany's Cinderella city for half a century and it remains an anomaly.

Split in two by the Iron Curtain for 40 years, Berlin was insulated from economic reality. West Berlin was kept alive as a capitalist showpiece by cash infusions from West Germany, while East Berlin was rebuilt to be a socialist "worker's paradise".

Since unification a decade ago and the return of the federal government in the last 12 months, Berliners have feared the worst - that their city would become a normal capital. They had nothing to worry about.

Berlin now enjoys the prestige of being the German capital, but with none of the added cost. It is still one of the most affordable capital cities in Europe.

This is borne out by numerous cost of living surveys, the most recent of which comes from Zurich's UBS bank. The Swiss economists compared average earnings and prices of food and accommodation in 58 capitals and financial centres around the world.

They came to the unsurprising conclusion that Tokyo was the most expensive city and Bombay the cheapest. Berlin, almost exactly in the middle of the list, is more affordable than most other European capitals on the list, including Dublin.

Using a shopping basket of 39 items geared to European consumer habits, the survey showed that a family of three in Berlin could expect to pay $287 for its goods, compared to $314 for the same shopping basket in Dublin and a world average price of $323.

Dining out is also markedly cheaper in Berlin, according to the survey, with an evening meal in a good restaurant costing over 40 per cent less than a similar dinner in Dublin.

The secret of Berlin's affordability is the availability of high-quality, inexpensive accommodation that places relatively low demands on a Berliner's budget. The average monthly rent for a two-bedroom apartment in Berlin is 730 deutschmarks (€373), almost 17 per cent cheaper than Dublin and even less expensive than accommodation in Mexico City and Sao Paolo, according to the UBS survey. The first and last housing crisis in Berlin was in 1858. In a short time, the Prussian capital changed from being a provincial backwater into an industrial powerhouse and, by 1850, it was attracting 800,000 immigrants annually.

An emergency plan to house these new workers created a vast network of five-storey, high-density apartment blocks. By 1870, Berlin had gone from being the "Athens on the River Spree" to the biggest working-class slum on the continent.

But times change, and yesterday's slums are today's most sought-after apartments, with 12-foot high ceilings and enclosed "Hinterhufe" courtyards.

Property developers moved in after unification, buying apartment blocks and renovating them to a very high standard. They expected a quick return on their investment, but supply is greater than demand and landlords are now bending over backwards to woo tenants.

"Almost 9 per cent of city centre apartments in Berlin are empty, a very high rate for a capital city, so Berlin tenants can afford to be quite choosy," says Mr Ludger Baba, an economist with Empirica research consultants.

Office space is also readily available in Berlin at rates unheard of in most European capital cities. At least 1.6 million square metres of Berlin office space is standing empty at the moment, 8 per cent of the total capacity, and at rates often half that of Munich or Frankfurt.

"Everything is ready for businesses. All they have to do is plug in," says Mr Hans Estermann of the Berlin Business Promotion authority, the city's equivalent of IDA Ireland.

Frankfurt will remain the financial capital and the Rhineland will always be Germany's industrial powerhouse. Berlin instead focuses on service industries and technology investment, and is now Germany's number one city for Internet business.

Inner-city factories that once housed pioneers of German industry like Siemens and AEG are now home to Germany's new economy enterprises like Pixelpark, one of Europe's largest Internet service companies.

To the relief of notoriously fickle Berliners, the bosses of new economy firms will remain millionaires on paper only for the foreseeable future, helping to keep Berlin the bargain city of Europe.