Hamburgers pile up the chips: Europe's wealthiest city is on a winning streak, with living standards double those in South-east England

VILLAS, mansions, palaces. For mile after mile, the display of wealth spreads out as you travel west from Hamburg towards the former fishing village of Blankenese, now the city's most exclusive suburb.

The residences, built by Hamburg's merchants old and new, stand beside the river Elbe, which has contributed so much to the city's prosperity. Some of the houses are easily visible. Others are hidden behind electric gates, and screened by rhododendrons.

In Hamburg, money and power have long been interwoven; Hamburgers point out that the old city hall backs directly on to the stock exchange. The rich merchant families of the old Hanseatic port - who were nicknamed 'Peppersacks' because of the money that could be made by importing spices - have always played a key role in the city's political life.

The European Commission has just published a set of comparative statistics showing Hamburg to be the most prosperous city in Europe. If one takes the European average as 100 - measured as gross domestic product per head of population - Britain lies at 98, ahead only of Spain, Portugal, Ireland and Greece. The UK's poorest regions have become poorer in the past 10 years, while the richest, the South- east, is a comparative plodder at 117, behind a whole string of cities and regions in Germany. Of these, Hamburg tops the bill, with a staggering 209.

In some respects, this extraordinary pre-eminence is overstated, because of a statistical quirk. Many who work in Hamburg - and therefore contribute to its wealth - live outside its boundaries. But none would deny the city's affluence. In some respects, it is the Liverpool-that-might-have- been. Hamburg suffered heavy air-raid damage in the Second World War, which destroyed industry and flattened many residential areas. More than 40,000 died. But the city's raison d'etre remained. As in Liverpool, maritime trade is an important part of the city's heritage; one noted 1920s office block is even built in the shape of a ship's prow. Unlike in Liverpool, however, the connections with the sea are not just the stuff of wistful memories.

The old warehouses, which in Liverpool and London have been occupied by television studios, museums and fashionable housing, are still used in Hamburg for the storage of goods: oriental carpets, coffee and tea. Despite the advent of containerisation and modern warehousing techniques, the docks continue to be the hub of the city's economic life. Even serious flooding - which has hit the city again this weekend - is seen as a part of Hamburg life.

Bridges, of which Hamburg claims to have more than Venice, criss-cross the canals. Shopping arcades, affluent even by German standards, are everywhere. Top fashions, luxury kitchens, oyster bars: all high- spending consumer life is here. A glitzy city centre is not, in itself, evidence of overall prosperity. Third World and British cities bear witness to the fact that oases of wealth can exist in the midst of poverty. In Hamburg, however - ruled for 40 years by the Social Democrats - the shops are a confident part of the city's self-image.

The poorest area is Wilhelmsburg, south of the Elbe, which has a large Turkish population and is home for many of the 40,000 asylum-seekers and refugees to whom the city has given money and shelter in the past few years (Hamburg alone has taken in more refugees than the entire UK). The district's population is about one-third non-German.

Even in relatively poor Wilhelmsburg, however, there is little of the stark contrast between rich and poor that is a familiar part of the British landscape. Even the district's unattractive tower-blocks are not filthy, neglected, or boarded-up like many of their equivalents in London or Liverpool. Still, the dangers are real. In Wilhelmsburg, Hamburg's Tower Hamlets, the extreme right-wing Republicans enjoy about 15 per cent support. The Social Democrat mayor of the city, Henning Voscherau, recently caused a political storm when he was alleged to have suggested a quota system to prevent foreigners from swamping the area (the mayor said his words had been taken out of context).

The cosy nepotism of the establishment finds itself under threat not just from the extreme right, but from the extreme centre. The Instead Party, a newly created group with almost no political programme and basing its support only on distrust of the old parties, humiliated the Social and Christian Democrats when it gained seats in the regional parliament last year. The ruling Social Democrats were forced into quasi-coalition with this German equivalent of the Monster Raving Loony Party.

None the less, it seems unlikely that Hamburg's good-burgher, cross-party stability will be seriously undermined. Certainly, some things seem likely to remain unchanged.

The Reeperbahn, 'Europe's most sinful mile', is as busy as ever. In what must surely be one of the most unusual traffic signs in the world, motorists are warned: 'Danger of accidents, 7pm-6am.' Translated: watch out for the drunk, distracted and over-excited. On nearby Great Freedom Street, where men in raincoats murmur constant invitations to step inside, a plaque marks where the Beatles played in 1960.

Not only on the Reeperbahn are things still lively. There has been steady growth throughout the period when others were stumbling or collapsing. German unification was one reason for the boost, since Hamburg gained a huge hinterland in eastern Germany. But the boom began even before unity in 1990. The increase in imports from the Far East - an obvious source of difficulties elsewhere in the economy - has provided Hamburg with an important source of income in recent years.

Other sectors, too, have survived almost unscathed. Hamburg is Germany's advertising and media capital. About 50,000 people are employed, directly or indirectly, in the media which, again partly because of German unity, have expanded in recent years. The European Airbus plane is being built here - the first A-321 was officially baptised on Friday - and is one of the largest sources of employment. The financial services sector, too, is strong.

Hamburg remains proud of its attempts to square the circle, so that more money for the few does not necessarily mean less money for the many. Despite the villas of Blankenese, it does not feel like a millionaires' city. It does, however, feel like a city where the money is unlikely to run dry.

(Photograph omitted)