When a group of young artists took over the bombed-out remains of a 19th-century shopping arcade on Berlin's Oranienburger Strasse in the early 1990s, the city government intervened to stop the wrecking ball. In a victory of art over commerce, officials forced the developer who owned the land--a 2.43-hectare plot of prime downtown real estate to give the artists a virtually rent-free lease. Four years ago the developer even agreed to spend 3 million euro to make the improvised studios and performance spaces safe for the artists to work in. Today the Kunsthaus Tacheles, as the now spruced-up building is called, thrives--its exhibitions, performances and concerts a magnet for young Berliners and tourists alike.

Few countries promote culture and the arts like Germany. In many places around the world, shrinking public budgets and rising commercial pressures have marginalized all but the most successful artists. Germany, on the other hand, is still awash with largesse--in the form of state-funded cultural venues and other support for the arts. Despite recent cuts, the country still boasts 324 major orchestras and theaters, along with low, subsidized ticket prices. This year alone, there will be more than 300 classical-music festivals in Germany, many of them outdoors and free. State spending on the arts amounts to roughly 8 billion euro a year. "State [support] for the arts has a long tradition, going back to the Prussian kings," says Ingrid Wagner-Kantuser, an official in Berlin's culture department. "Art and culture are a very popular part of our lifestyle."

In the capital, Berlin, that arts-friendly attitude has fostered a mushrooming international creative scene. One big reason: Berlin has the lowest cost of living of any Western metropolis, combined with a seemingly endless supply of empty work-space. "What artists need more than anything is space to realize their projects," says Karen Yama, a photographer who moved from Brooklyn to Berlin five years ago with writer husband Jeffrey Eugenides, who wrote much of the Pulitzer-winning "Middlesex" in their 190-square-meter Schoneberg flat.

In the downtown Mitte district, empty storefronts have been turned into impromptu galleries and workspaces. With rents so cheap, gallery owners can afford to take risks with the untested and avant-garde. "In London or Paris the important gallerists wouldn't even talk to me," says Heman Chong, a 27-year-old multimedia artist from Singapore who works out of a spacious apartment in the artsy Kreuzberg quarter.

Up-and-coming conductor Philippe Jordan, 30, recently premiered "Elegy for Young Lovers," a shrill, modernist opera by composer Hans-Werner Henze, at the venerated German State Opera. "That would not go over well in most other places," Jordan says. Australian Richard Grayson is working on a wacky country-and-Western reprise of Handel's "Messiah." "People here care a lot more about whether they like something than whether it's going to make any money," says Buddy Giovinazzo, a New York filmmaker and novelist who's lived in Berlin since 1998.

Public budgets and private sponsors are helping to keep the financial pressures off. Giovinazzo first came on a scholarship from the German Academic Exchange Service, while Chong now gets a monthly check from the city's culture department. Yes, Germany's budgets are under intense pressure amid rising costs for unemployment and social spending. One day, the inevitable economic upturn will price rents in Berlin out of most artists' budgets. But with the pace of change in Germany ever so slow, it should be a good life for creative types for a while to come.