BERLIN: It was more than just the historic settings in Berlin that drew Tom Cruise to Germany last summer to film his $80 million epic Valkyrie, about a failed 1944 attempt to assassinate Adolf Hitler.
It was also the cash.

The German government was able to show Cruise the money - writing a check for €4.8 million, or $7.1 million, for the MGM/United Artists production.
A fresh source of film subsidies has injected new vigour into Germany's rich cinematic tradition, which before the Nazis took power in 1933 had been a great rival to Hollywood, with classics like Fritz Lang's Metropolis and Josef von Sternberg's The Blue Angel featuring a young Marlene Dietrich.

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"It's been a Wundermittel," said Dieter Kosslick, director of the Berlin Film Festival, which starts Thursday, using the German term for miracle cure. About 34 international co-productions got money last year under the program, known as the German Federal Film Fund, or DFFF. None of the films are ready to show in Berlin.
"The whole film industry infrastructure is being expanded and professionalized," Kosslick said.

Germany is not the only country luring international productions with cash. Singapore, Hungary, Canada and others offer handsome rebates to film production companies. But besides filling production schedules at studios like Babelsberg and Bavaria, the new fund - worth €60 million in rebates to 99 films, including "Valkyrie," last year - has helped revitalize cultural confidence in a country that lost much of its talent and infrastructure in the Nazi era.

Lang, Dietrich, Billy Wilder and others fled to Hollywood, and the local industry was used as a tool by the Nazis for propaganda. It never really recovered, even after unification in 1990.
Now the €180 million program that runs to 2009 has Hollywood, European and domestic filmmakers tripping over each other to make enough of their films in Germany to qualify.
The grants - up to 20 percent of a film's budget provided enough of it is spent in Germany - had a total economic effect of €388 million in production spending in 2007, its first year. They run alongside €230 million in existing German film board subsidies.

The fund has reversed a situation where for many years German taxpayers unwittingly helped finance Hollywood films through private tax-shelter film funds. Germans were previously able to offset losses on investments in film, making the film funds attractive to thousands of private investors. They put €2 billion a year into them, and 70 percent of the money went to Hollywood.

The government first closed the tax loophole in 2005 and then introduced the DFFF, which the culture minister, Bernd Neumann, said he hoped to extend beyond its initial three-year run.
"There's no more 'stupid German money,' " Kosslick said, referring to the tax loophole. "Something like €20 billion of German tax money was squandered on Hollywood films hardly anyone saw. The situation is much better now. I'd call this 'smart German money.' "

Business is booming at Babelsberg, which calls itself the largest studio complex in Europe. There were 11 major films produced at the studios in Potsdam in 2007, with revenues of €245 million, up from just one major film in 2006.
"We're at the start of a sustained development," said Carl Woebcken, chairman of Studio Babelsberg. The status of Berlin as a relatively inexpensive European city is another helpful factor, he added. "We're expecting the positive trend to continue."

Aside from the Cruise film, due out in 2008, other international co-productions lured to Germany in the last year include the Wachowski brothers' Speed Racer, which got €9 million from the fund, and Stephen Daldry's The Reader.
There is also The International, starring Clive Owen and Naomi Watts, and a Danish World War II drama by the Danish director Ole Christian Madsen, Flame & Citron, starring Mads Mikkelsen, who played the principal villain in the recent Bond film Casino Royale.

DFFF fund representatives have gone on the road in recent months to try to spread the word, sending delegations to Italy, Britain, France, Austria and Denmark to encourage more applicants.