Germany’s main neo-Nazi party faces financial collapse after it was fined almost £2.3 million for accounting irregularities today.

The National Democratic Party (NPD), which is struggling to cope with bitter in-fighting and an embezzlement scandal, was ordered by the national parliament to pay €2.5 million (£2.3 million) by May 1.

A lawyer for the party warned that the fine, which comes four months after its former treasurer was jailed for stealing €741,000 (£677,000) from NPD coffers, threatens its existence.

The NPD is a legal political party and although it has no seats in the federal parliament it is represented in two of Germany’s 16 state legislatures. It is eligible for state funding which in 2007 amounted to more than £1 million, despite being described by the Office for the Protection of the Constitution as racist, anti-Semitic and revisionist. NPD officials have, for example, praised Iran's President Ahmadinejad for arguing that Israel should be wiped off the map and the party’s leader, Udo Voigt, has said that Hitler’s deputy Rudolf Hess should have won the Nobel Peace Prize.

There have been a number of attempts to close the party down, including a legal attempt by the Government in 2003 which failed when it emerged that key prosecution witnesses were paid state informants.

After today's fine, however, the NPD’s future looks uncertain. It was already struggling to make ends meet after the Bundestag withheld a payment of €300,000 in state funding in February in anticipation of the fine, and must now come up with a further €2.2 million by the end of the month. The embezzlement by Erwin Kemna, a former treasurer, has put another huge hole in party finances.

A power struggle within the leadership – accusations of being “one-eighth Jewish” were among the remarks hurled between rivals – also threatens to tear the party apart. The NPD is facing state elections in its strongholds of Saxony, Thuringia and Brandenburg in the former East as well as a nationwide general election in September, but it is unclear how it can fund a major campaign.

A spokesman for the parliamentary investigators who issued the fine said that the party had given an inaccurate account of its assets and inadequate details of its income in its 2007 financial statement. The NPD said that the discrepancies were due to an “office error” and the fine meant that its “political existence is threatened,” the German publication Spiegel reported.

The NPD has around 7,000 registered members in Germany and won 1.8 per cent of the vote in the 2005 general election, but its influence in some areas is considerably greater. Despite the NPD’s woes, there are fears that far-right sentiment is on the rise in Germany, particularly as unemployment rises with the recession.

The number of right-wing crimes, which ranged from assault and arson to displaying banned symbols, rose 28 per cent in 2008 compared with the previous year, while a survey last month indicated that almost one in 20 boys aged 15 were members of a right-wing group. Earlier this week the interior ministry banned a neo-Nazi youth organisation, Heimattreue Deutsche Jugend - German Youth Faithful to the Homeland - which organised military-style camps to teach children racial ideology.

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