Germany's opposition Christian Democrats (CDU) used more than DM1 million (£400,000) in illegal funds to fight last year's election in the southern state of Hesse - which the party won by a narrow margin - according to a report released by the party yesterday.
Hesse's prime minister, Mr Roland Koch, admitted that he misled the public last month by claiming that funds he knew had come from secret accounts in Switzerland were entirely proper.
The 1,000-page report on the finances of the CDU in Hesse revealed that more than DM24 million (£10 million) from secret accounts was used to fight elections in the state during the past two decades.
The origin of the money is unclear but a report by CDU auditors last week suggested that it might have come from a trust established by rich industrialists to support Germany's conservative parties.
A court ruling on whether to declare last year's state election in Hesse invalid was this week postponed until March 3rd. During the campaign, the CDU organised a petition against plans by the Chancellor, Mr Gerhard Schroder, and his centre-left government to make it easier for foreign immigrants to become German citizens.
Mr Schroder's Social Democrats claim that the CDU won the election unfairly by using illegal, undeclared funds during the campaign.
Mr Koch said that a funding system "like that of a secret society" operated alongside the official party accounts for decades, but he insisted that no money was transferred from his state to central party funds.
The CDU admitted last week that the party used a system of accounts in Switzerland and Luxembourg to disguise donations that were later used for election campaigns. The former chancellor, Dr Helmut Kohl, claimed last week that he had no knowledge of the Swiss accounts but this has been disputed by the party's former financial adviser, Mr Horst Weyrauch.
The dispute over who is to blame for the funding scandal has developed into a personal battle for credibility between Dr Kohl and his successor as party leader, Dr Wolfgang Schauble. Although Dr Kohl retains strong support among party activists, Dr Schauble's hand was strengthened by last week's auditor's report, which appeared to back his account of a DM100,000 (£40,000) gift from a fugitive arms dealer.
Dr Schauble insists he will stand again for the leadership of his party at the CDU annual conference in April but most commentators believe he has little chance of surviving as party chairman until the next federal election in 2002.
The party faces its first major electoral test this month when voters in the northern state of Schleswig-Holstein choose a new parliament.
Although the CDU vote looks certain to fall, the collapse of support for the Greens could spell defeat for the centre-left coalition that currently governs the state. A strong showing by the Liberal Free Democrats (FDP) could be enough to ensure a new centreright government in the state.
In an effort to distract from the funding scandal and return to politics as usual, the CDU and FDP have united to oppose the Berlin government's tough line on Austria's new ruling coalition, which includes members of Dr Jorg Haider's far-right Freedom Party.
The FDP general secretary, Mr Guido Westerwelle, described the reaction of Austria's EU partners to the formation of the new government as "hysterical" and warned that it could serve to increase support for the far right in Austria.
