The Ken Livingstone of Berlin?

Gregor Gysi, now close to power, may be a communist relic of East Germany, but he is also a talk-sho

Berlin on a crisp, winter morning: the black and gold onion dome of the central synagogue - burnt by the Nazis, bombed in the war, rebuilt after - rises serene above the Oranienburgerstrasse. Gathered in front of the synagogue are hundreds of punks and left-wingers, out in force because thousands of neo-Nazis have threatened to march through the old Jewish quarter.

The atmosphere is tense as they jeer at the police. The cobblestones are slippery; water cannon have been used already, after the crowd threw stones. Then a diminutive man, dressed in the mac and beret of a Rive Gauche intellectual, steps through police lines and is engulfed by a bubble of camera crews and reporters. It is Gregor Gysi, the 53-year-old lawyer who is the communist candidate for mayor of Berlin. He is the successor to the people who built the Berlin Wall, and he is on the crest of a wave.

Gysi, who is of Jewish descent, advances towards the crowd, and there is a moment of uncertainty - will he rouse their fury or soothe it? It turns out that the neo-Nazis have been rerouted and will not march past the synagogue. Gysi urges the crowd to disperse and, after some confused ebbing and flowing, they do.

The stand-off in Oranienburgerstrasse is one of those moments when German history, and Berlin's history especially, comes alive and crackles with emotional electricity. And it is only natural for Gysi to place himself at the centre of it, being pictured with the radicals but also aiding the forces of the state - for these days, the communists are once again on the cusp of power. The party which has renamed itself the Party of Democratic Socialism (PDS) is about to get its first taste of power in Berlin since German reunification in 1990. The communists have struck a deal with the Social Democrats - the party of Germany's chancellor, Gerhard Schroder - to form a "red-red" coalition, to be sworn in on 17 January.

The deal follows the success of the communists in October's city elections, when they got 47.6 per cent of the vote in East Berlin. Twelve years after the fall of the Berlin Wall, 11 years after the GDR crumbled, newspapers gloomily concluded that Berlin was still a divided city. East Berliners, attracted by the communists' commitment to high levels of social provision (harking back to the generous creche system and healthcare of the GDR) told pollsters that they would no longer submit to the domination of western politicians. But there was more to it than that. The PDS also polled 22.6 per cent in affluent West Berlin, only just behind the Christian Democrats, who got their worst result ever. The communists' success with the bourgeoisie showed how well Gysi is playing the cross-currents of a transformed world.

Gysi is the Ken Livingstone of Berlin. True, he will probably become only the deputy mayor, but he seems sure to outshine Klaus Wowereit, the Social Democrat mayor whom journalists find so boring that the only thing they can say about him is that he is gay. Gysi is the darling of the talk shows, prized for his cheeky wit. Asked why he wanted to be mayor of a capitalist city, he replied: "Because no socialist city is available."

Gysi is a scion of communist aristocracy; his father Klaus was an ambassador for the GDR, as well as culture minister and secretary of state for "church matters". His son joined the party in 1966, aged 18, and studied at Humboldt University in Berlin.

Gregor Gysi made a name for himself as one of the few lawyers plucky enough to defend leading dissidents. Yet he was also, according to a parliamentary investigation in 1998, an "unofficial collaborator" with the Stasi, passing on details of his clients' conversations. He firmly denies the claim, and his best-known client, Rudolf Bahro, a writer jailed by the GDR on trumped-up charges, backs him.

But the baggage of Gysi and his party makes Chancellor Schroder, himself facing a re-election campaign this year, nervous of a "red-red" government in Berlin. Last August, on the 40th anniversary of the construction of the Berlin Wall, the party declared that "no event in German postwar history was so accompanied by trauma as the building of the wall". It wasn't quite an apology. The Christian Democrats are exploiting Gysi's past by demanding that Berlin's parliamentarians be checked for Stasi links, as Bundestag members are.

Nevertheless, Gysi has plenty going for him: overwhelmingly elected as PDS chairman shortly after the collapse of the Berlin Wall, he has hitched just about every "anti" horse to his bandwagon. Now that the Greens have swallowed their peace-loving rhetoric - because their most prominent member, the foreign minister, Joschka Fischer, has become a passionate advocate of "just war" in Afghanistan - the communists are the best option for disenchanted pacifists. The communists have also made the most of the anti-capitalist climate created by the "No Logo" movement: "The throwaway society also throws people away," says their manifesto. Their programme includes the nationalisation of the banks, yet also makes it plain that the Gysi brand of communism is flexible enough to allow business to make profits.

The new Berlin government faces enormous problems. The city's finances were already parlous due to the ending of cold-war subsidies, and the reluctance of Germany's big companies to relocate from comfortable western cities such as Munich. But in October, the Social Democrats pulled out of a left-right "grand coalition" with the Christian Democrats because of the latter's involvement in a string of murky deals that helped turn Berlin's miserable financial situation into a disaster. The city now has debts of £25bn, and swingeing public sector cuts, which will hit some of the left's voters hardest, are inevitable.

Gysi has been careful to talk of "socially just austerity measures", but he knows that power means taking a share of responsibility for unpopular decisions. It is a gamble: save the city and, the party's strategists hope, the road to electoral success in western Germany beckons. But the PDS will find it very hard to make inroads there. Andre Brie, the party's campaign manager for the Berlin elections, knows that the communists have limited impact on public debate outside their eastern heartland. The key to future success, he believes, is the kind of connection the party achieved with pacifists over the war in Afghanistan. The PDS wants to build on this by making a more significant contribution to debates on globalisation and gene technology.

Then, perhaps, a strong party to the left of the Social Democrats can emerge, fighting for better social provision and challenging American global hegemony.

Jeevan Vasagar is a Guardian reporter