The 2001 election was a premature election. In June 2001, the grand coalition under Eberhard Diepgen (CDU) was broken following a scandal about the CDU parliamentary leader Klaus-Rüdiger Landowsky: He had been the CEO of a public mortgage bank at the same time and, in this role, he had financed a risky deal of two men, who had donated money to the local CDU organisation. This scandal cost the city of Berlin several billion euros. The SPD left the coalition, which had governed Berlin since 1990, and formed an interim government with the Greens, that lacked a parliamentary majority and was supported by the socialist PDS. Klaus Wowereit became Governing Mayor after a constructive vote of no confidence against Eberhard Diepgen on 15 June. The House of Deputies voted for its self-dissolution.
The campaign was widely influenced by the bad state of the public finances and the "bank scandal". The CDU nominated the 35-year-old Frank Steffel for mayor and concentrated on the fear before a participation of the ex-communist PDS in the government and on security issues, especially after 11 September 2001. The style of negative campaigning backfired against the CDU.
The CDU suffered enormous losses, from which all the other parties could profit, but the interim minority government of SPD and Greens had not got a majority. The politically possible options for forming a government were a renewed grand coalition, a traffic-light-coalition between the SPD, the FDP and the Greens, or a red-red coalition of SPD and PDS. Because the grand coalition was just broken five months ago and a cooperation with the PDS, which was the successor of the GDR's communist party, seemed inopportune, the SPD started negotiations with the Greens and the FDP. These negotiations failed, officially due to financial issues. Thus, Wowereit justified the coalition with the PDS as the only possibility remaining. The agenda of the new coalition (the second in a German state after Mecklenburg-Western Pomerania) consisted mostly of strict cuts of public spending.