THE architect of Germany's radical labour reforms confessed yesterday to cheating Volkswagen, the biggest European car-maker, by using a slush fund to pay for prostitutes and luxury holidays for top trade unionists. Peter Hartz, who was the company's personnel director, is accused of paying E400,000 ($658,000) to the Brazilian mistress of the former works council chief of VW. Unauthorised bonuses were paid to union leaders' nightclub visits and escort girls became part of the business culture to ensure that worker representatives who were given boardroom directorships played along with unpopular management decisions. The prosecutor yesterday estimated the total damage to VW at about E2.6 million. Mr Hartz was once seen as the saviour of an ailing economy apparently unable to stem mass unemployment. Yesterday, he was heckled by protesters shouting "Traitor!" and "A great day for the unemployed".
Gerhard Schroder, the former chancellor, had called on Mr Hartz to introduce a system designed to push people into employment. Until the 1990s it was sometimes more profitable to live on welfare payments than to seek work. The reforms - the latest round is called Hartz IV - have made Mr Hartz into a hate figure, especially in eastern Germany, where people complain that they are being pushed below the poverty line. Mr Hartz faces 44 charges of breach of trust and, if found guilty on a single charge, faces a maximum five-year jail term.