David Shukman in Bonn: "Auschwitz was built with a loan"

Mr Schröder said that the fund's overall sum had not yet been set. Reports in German newspapers suggest that the fund could be worth up to 3bn Deutschmarks (£1.2bn, $1.7bn).

The money will be used to compensate former slave labourers and people whose property or businesses were expropriated by the Nazis. According to government estimates around 200,000 to 300,000 people will be eligible for compensation, the majority of them living in Eastern Europe.

In a joint statement the companies said the fund for "remembrance, responsibility and the future" represented a final "material signal" on the issue. Deutsche Bank chairman Rolf Breuer, driving force behind setting up the foundation, called it a "milestone".

Chancellor Schröder said: "This paper shows that German business can deal responsibly with its history."

German companies could rely on a steady supply of workers from concentration camps

The fund is being financed by some of the top names of German industry and is designed to cover not only compensation claims, but support future-oriented projects like youth exchanges as well.

The companies and the government hope that the establishment of the "voluntary fund" will avert the threat of multi-billion law suits in the United States. Lawyers acting for victims of Nazi rule are preparing several class action suits against companies like Deutsche Bank and Volkswagen.

Mr Schröder said the fund's function was "to counter lawsuits, particularly class action suits, and to remove the basis of the campaign being led against German industry and our country."

The German government has paid billions of Deutschmarks in compensation to former prisoners in concentration camps during past decades, including a settlement negotiated with the State of Israel. Most slave labourers, however, have not been compensated by the companies they were forced to work for.

Some businesses, like Volkswagen, have already agreed to pay their former workers around 10,000 Deutschmarks (£3,500, $5,700) each. Other companies have only recently begun to open their archives to independent historians and lay open their involvement in the Holocaust and World War II.

The declaration was signed by insurance company Allianz, chemical giants BASF, Hoechst and Bayer (successors of the notorious IG Farben), car companies BMW, DaimlerChrysler and Volkswagen, Deutsche Bank and Dresdner Bank, steel and metal producers Degussa, Krupp and Hoesch and electronics conglomerate Siemens.

They appealed to other German firms who used slave labourers during the Third Reich to join the fund, too.

German companies had come under pressure to come to terms with their actions during the 1930s and 1940s after Swiss banks had established a Holocaust compensation fund.