Ex-Nazi slaves tell Germany: raise payout or face trade war threat to boost pounds 2.7m payout offer

NEGOTIATIONS TO compensate wartime slave labourers were on a knife edge last night, as the lawyers representing them prepared to issue their "final demand", threatening to unleash a world trade boycott against Germany if it was not met.

Ultimatums flew in both directions. Chancellor Gerhard Schroder fanned the flames, declaring that German industry and the government combined could afford not one pfennig more than the DM8bn (pounds 2.7bn) now on the table. "The sum is not to be raised," Mr Schroder said, provoking a bitter attack from the Central Council of Jews in Germany. Describing Mr Schroder's statement as "outrageous", the Central Council repeated that victims would not settle for anything less than DM10bn (pounds 3.3m).

Jewish groups combined with Greens to lambast the tight-fistedness of German industry, which grew fat on the war profits at the expense of millions of people it herded into its factories. The reluctance of thousands of German firms to settle their wartime wage bills has been the stumbling block in these negotiations from the beginning.

An estimated 2 per cent of the companies concerned have agreed to contribute to a Holocaust compensation fund underwritten by the German government. Less then 20 companies, among them DaimlerChrysler and Volkswagen, have put up money. Yesterday, the Viag concern joined the fray, raising hopes of more cash in the kitty.

The claimants, represented by lawyers, victim groups and the governments of several East European countries, have never been paid for their toils, but court actions against their employers have proved fruitless. The figure of DM10bn is generally accepted as the minimum required to pay each surviving forced worker or "slave" a back-dated pay cheque.

About 230,000 "slaves" - people forced to work at factories attached to concentration camps - and hundreds of thousands of people drawn from the occupied countries and forced to work in regular German factories are entitled to compensation. The German government had pledged to settle their claims before the millennium, but now, because of the stalling tactics of German companies, that is unlikely to happen. The Germans insisted, though, that the ball was in the other court. "It really is about time we received an answer," Count Otto Lambsdorff, the German chief negotiator, said yesterday. "I would like a very clear proposal with a number," he added. "With this then, we can consider things further on."

That appeared to be an acknowledgement that, contrary to what Chancellor Schroder had claimed, Germany could go higher than its DM8bn. In an interview with the business paper Handelsblatt, Mr Lambsdorff said there was "still a great deal to negotiate".

Intense negotiations were also going on among the companies volunteering to participate in the fund. Most of them were close to agreeing last night their allocated shares, though if the total increased the process of who pays what might begin anew.

Some companies maintain that, since they have been paying into Jewish charities for years, they have already settled part of their debt to society. The fund was set up amid the growing threat of US litigation. The participants demand gurantees from the US government and US-based victim groups that they will not be prosecuted or sued if they pay up.

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