Halfway through reading out his plan to establish the Fourth German Reich, Horst Mahler pauses. The 66-year-old lawyer is sitting in front of a captive audience of 60 people on a sunny Saturday afternoon in a hunting lodge in the Thuringian forest, five miles from the former border between East and West Germany. Stuffed deer heads and paintings of wild boar hang from the walls of the room. In front of the table Mahler is sitting at is draped a banner with the flag-to-be of the Fourth Reich -a black, red and gold version of the Norwegian flag. To his right on the podium sits the guest of honour, a frail-looking, white-haired octogenarian Dutch woman named Florence Rost van Tonningen, the widow of the president of the Netherlands central bank during the wartime German occupation. Mahler, a plump figure with a perfectly clipped grey goatee and rimless spectacles, wearing a dark-grey open-necked shirt, turns to his right to face her.

“This lady is one of the few people still alive who had personal contact with Hitler,” he tells the audience. “Heinrich Himmler was the best man at her wedding, and she still wears the ring he gave her. I am now going to kiss it.”

With that, Mahler leans across, takes her left hand in his, and presses his lips to the chunky, rectangular ring. Electrified, the audience applauds rapturously. It is as if the Führer himself had just entered the room.

This is not the mainstream-friendly New Right of Jörg Haider, whom Mahler dismisses as a sell-out “system politician”. In fact, Mahler is not interested in electoral success at all. He wants nothing less than the overthrow of the German state, which he regards as a puppet regime of the “occupying powers” -above all the United States. To do this, he believes Germany needs to be shocked out of the “mental block” it has suffered from for 57 years.

When a member of the audience timidly suggests he should be careful about doing and saying things that border on the illegal in Germany, he raises his voice for the first time. “This system tries to intimidate us by telling us we can’t do this or that,” he W X booms, rolling his r’s in a self-consciously antiquated German style. “It will fall apart if we say, ‘Rubbish.’ It must be done for the sake of truth, regardless of the consequences. We’ll go to prison for the sake of the truth.” As everyone in the room knows, Mahler has been to prison for his political activities once before -for a decade. In 1973 he was convicted of “conspiracy to commit aggravated robbery in connection with the establishment of a criminal organisation and participation in the same”. The criminal organisation was not, however, a far-right party, but the Baader-Meinhof gang, the fanatical left-wing terrorist group whose hijackings, kidnappings and executions of West German establishment figures in the Seventies made it public enemy number one.

Mahler’s own lawyer at that time was Otto Schily, now Germany’s interior minister. Seven years after Mahler’s release from prison in 1980, he was able, with the help of another young left-wing lawyer, Gerhard Schröder – now Germany’s Social Democrat chancellor -to resume his legal practice in Berlin. Then, in the summer of 2000, Mahler shocked the German public and his contemporaries by announcing that he had become a member of the National Democratic Party of Germany (NPD), by far the nastiest and most extreme (but electorally insignificant) of the country’s numerous far-right parties. Schily wanted to ban the NPD. Mahler -now no longer able to get work as a commercial lawyer -volunteered to represent the NPD in court, setting up a head-to-head battle between the two men who had once been close friends and political allies (Schily declined to be interviewed for this story). Germany’s constitutional court is currently considering the case.

The story of how the left-wing lawyer Schily became a hardline law-and-order interior minister is interesting enough (paralleling, incidentally, the career of Jack Straw). But Mahler’s story is more fascinating still, and certainly more unusual. His metamorphosis from Marxist terrorist to neo-Nazi ideologue is a paradox, not just because it represents a move from one extreme of the political spectrum to the other, but because the 1968 student movement in Germany, from which the Baader-Meinhof gang grew, understood itself above all as a revolt against the so-called “Auschwitz generation”.

In October 1968, five months after the evenements in Paris and six months after the German student leader Rudi Dutschke was shot in Berlin, a slim, charismatic 25-year-old dandy named Andreas Baader appeared before a criminal court in Berlin. He was charged, along with three others, of setting off home-made bombs in two Frankfurt department stores after closing time in April 1967. It was the first action by the terrorist group that would soon become infamous worldwide as the Baader-Meinhof gang and later as the Red Army Faction (RAF).

The German student movement had begun peacefully enough in the mid-Sixties with protests against the Vietnam War. But all that changed on June 2, 1967, when, during a demonstration against a visit to West Berlin by the Shah of Iran, a 26-year-old pacifist named Benno Ohnesorg was shot dead by a policeman after clashes between students and the police. To the likes of Baader, Ohnesorg’s death seemed to prove what they had long suspected – that Nazism had not been defeated in 1945, but rather had metamorphosed into a new, insidious form in postwar West Germany (many former Nazis had, in fact, become senior figures in West German politics and business). They believed that beneath the affluent, democratic veneer of the Federal Republic was a fascist state -a “Raspberry Reich”, as Baader’s girlfriend and co-conspirator Gudrun Ensslin put it. “We must organise resistance,” Ensslin declared at a rally the night after Ohnesorg was killed. “Violence is the only way to answer violence. This is the generation of Auschwitz – there’s no arguing with them.”

Representing Baader in court that day in 1968 was Horst Mahler, then aged 32. The son of a Silesian dentist whose family had fled westwards in 1945 when he was nine years old to escape the Red Army, Mahler had qualified as a lawyer in 1963. After several years successfully practising commercial law in Berlin, he had co-founded the Socialist Lawyers’ Collective and represented Dutschke and other student leaders arrested during the anti-Vietnam demonstrations. Another member of the nine-member legal team for Baader and his co-conspirators was Otto Schily. Mahler began his political defence by telling the court that Baader’s actions were an act of rebellion against his parents’ generation -the “perpetrator generation” – that had stood by while millions of human beings were liquidated. Their parents had failed to resist the Nazis; this was the Baader generation’s form of “resistance”.

Baader and the other three defendants were each sentenced to three years in prison. But when in November 1969, after serving 14 months of their sentence, Baader and Ensslin were temporarily released and went underground to become “urban guerrillas” after the model of the Vietcong and the Uruguayan tupamaros, Mahler joined them. During an attempt to procure guns from a friend of Mahler’s who turned out to be an intelligence agent, Baader was re-arrested in April 1970; a month later, with Mahler’s help, he was sprung from Tegel prison in Berlin. Together with Ulrike Meinhof and others, they went to a PLO training camp in Jordan, where they learnt how to fire a Kalashnikov -later to become the group’s symbol. There, Mahler and Baader, competing for leadership of the embryonic terrorist cell, began to fall out. On their return to Berlin, they began robbing banks to raise money for the “armed struggle”.

Mahler quickly became one of Germany’s most wanted men. In October 1970, the Berlin police received an anonymous tip-off about the group’s whereabouts, raided an apartment near the Ku’damm, West Berlin’s main shopping street, and found Mahler. He was wearing a wig and had grown a bushy beard to disguise his appearance, and had in his possession a loaded Spanish-made Llama 9mm pistol with two spare clips. Three years later, during Mahler’s criminal trial, it was Schily who defended him. After Schily had completed his closing arguments, the judge turned to Mahler and asked him if he had anything to say. “One doesn’t speak to judges,” Mahler said. “One shoots them.” He was sentenced to 12 years in prison.

The weekend retreat in Thuringia has been organised by the “Deutsches Kolleg”, the nationalist think-tank Mahler runs with two other far-right intellectuals. They have chosen the location because it lies at the foot of the Wartburg, the castle where, in 1521, Martin Luther translated the Bible into German (the beginning of “the Germanification of Christianity”, one of the organisers explains to me). The audience is a bizarre collection of people of various ages from all over Germany, as well as delegations from Austria and Holland. There are war veterans who just want to reminisce, but also young men with SS haircuts and a few women wearing dirndl, the traditional German dress. One woman also wears a Palestinian scarf.

The aim of the retreat is quite literally to plan the Fourth Reich. As far as Mahler and the organisers are concerned, the postwar Federal Republic is an illegitimate “vassal state” imposed by the “occupying powers” after 1945. Germans have been brainwashed into accepting the alien democratic regime run by “traitors to the Fatherland”. “We are a Volk that still finds itself in a state of defeat,” the black-shirted co-organiser Uwe Meenen says. Mahler, the designated Führer, gives a two-and-a-half-hour lecture on Hegel and Germany’s world-historical role destiny -to overthrow the “US East Coast with its financial, media and military power”. From the blank expressions on the audience’s faces, it seems they are having difficulty following him. It is only when Mahler starts talking about “the Jewish Anti-Volk” and making anti-Semitic jokes about the Central Council of German Jews that they come alive, applauding and cheering as he breaks every possible taboo of postwar Germany.

So seriously do the organisers take themselves that they have even drafted a set of Nuremberg-style laws for the imminent Fourth Reich. There are paragraphs on compulsory military service, “foreigner’s law”, and, of course, the “Jewish question”. “The Jews and their cult are banned in the German Reich,” it begins. A smartly dressed middle-aged woman whispers excitedly to me: “Just like under Adolf!”

Mahler reserves his strongest language for miscegenation, using the word “Rassenschande”, the term the Nazis used for sexual relations between Aryans and non-Aryans. “The negro is beautiful to the negro; the slanty-eye looks appealing to the slanty-eye, the white man is attractive to the white man,” he says. “But the white man is a horror to the negro; the slanty-eye is frightening to the white man. The Jew regards the Goy as an animal. Why should it be unacceptable to talk about this?”

Kleinmachnow, where Horst Mahler lives with his Polish fiancee and her two children, is an affluent suburb southwest of Berlin. He greets me with a smile at the door of his pretty villa, and shows me into the sitting room.

It is a typical modernist, middle-class German home -white walls, shelves stacked with heavyweight books, a Bang & Olufsen hi-fi. The centrepiece is a huge abstract canvas, in which, if you look at it long enough, you can make out two faces. It is precisely the kind of “degenerate” art that Hitler would have put his jackboot through.

Mahler disappears into the kitchen and returns a few minutes later with a tray of cold drinks. At home he seems softer and friendlier than at the hunting lodge a few days earlier. In fact, dressed in a casual short-sleeved shirt, with his beard and his big belly sticking out in front of him, he seems almost avuncular. He sits back in a big black leather sofa, and Barney, his German hunting dog, jumps up and cuddles up to him.

As soon as I ask him to tell me about his time in prison in the Seventies, however, he becomes uncomfortable and avoids eye contact.

“What can I say?” he says gruffly. “I was in prison.”

I ask him whether it was in prison that the transformation in his political thinking occurred (in 1977, just a few months before Andreas Baader and Gudrun Ensslin committed suicide in their maximum-security cells in Stammheim prison in Stuttgart, Mahler had published an essay in Kursbuch, a left-wing journal, in which he distanced himself from the Baader-Meinhof group).

“I am very, very cautious about using that kind of vocabulary,” he says, evading the question again. “Everyone changes, I hope. If one doesn’t change, one is dead.”

Mahler quickly returns to more familiar, theoretical ground. If there was a turning point in prison, he says, it was when he studied Hegel’s Logic -given to him, ironically, by Schily -and began to realise that Marx had crucially misunderstood Hegel.

“It led me to free myself from the Marxist theory of revolution,” he says – the theoretical basis, in other words, for the Baader-Meinhof group’s concept of the “urban guerrilla”. So he does at least admit that his views have changed?

“You have to see it dialectically,” he replies quickly, a hint of annoyance creeping into his voice. “One changes, and at the same time one remains the same.”

The most baffling aspect of Mahler’s political journey, however, is not his disillusionment with the Baader-Meinhof group’s methods – that was shared by many of his generation -but his about-turn to embrace the very ideology the student movement believed it was in revolt against. But Mahler now has a very different interpretation of 1968. His own parents, he now tells me cheerfully, were committed Nazis. His mother even won the Mutterkreuz, the medal given to mothers who produced at least four children. (His father died when he was 13; his mother during his years in prison.)

Mahler says that for him, at least, the “enemy” was never his parents’ generation but the United States. In 1968 he was opposed to American imperialism in Vietnam. These days, he prefers to talk about “the US East Coast” and gives his anti-Americanism an anti-Semitic twist. In an essay called “Independence Day Live” that he wrote on September 12, 2001, he even celebrated the terrorist attack on America as the beginning of the end for the “Judaeo-American imperium” (he was subsequently prosecuted and fined for remarks he made about September 11).

Therefore, Mahler explains, it is Schroeder and Schily, having come to terms with capitalism, the German state and the US, who have really changed. “I stand where I have always stood -against the world enemy number one,” he says matter-of-factly.

For many political analysts in Germany, Mahler is just an eccentric egomaniac whose political transformation can only be explained in personal terms. “Mahler always had a tendency to provoke and to look for the greatest possible shock effect,” says Claus Leggewie, a professor of political science at the University of Giessen. “The greatest provocation in Germany is of course to take a far-right position.” That is no doubt true -he says he aims to shock and even admits he wants me to include the episode with the ring in my article. But to understand fully Mahler’s lonely political journey, one first has to trace the trajectory of his contemporaries from the 1968 generation.

In November 1998, Horst Mahler sat down in his cellar study in Kleinmachnow to write a Pamphlet to the Germans Who Want to Stay German, on the State of the Nation. It was a bitter polemic against immigration to Germany, which, he said, had already turned neighbourhoods of German cities such as Wedding in Berlin – where Mahler himself had lived after coming out of prison – into foreign settlements and was now threatening the future of the German Volk itself.

A month before Mahler wrote the pamphlet -his most radically right-wing to date -Gerhard Schröder, Mahler’s former lawyer, had become German chancellor at the head of the first coalition of Social Democrats and Greens. He appointed Joschka Fischer, a former member of a militant group called “Revolutionary Struggle” in Frankfurt in the early Seventies, as Foreign Minister, and Otto Schily as Interior Minister.

The “red-green” government, as it is known, marked a momentous cultural and generational shift in German politics. Exactly 30 years after it had marched in the streets, the generation of 1968 had completed what Rudi Dutschke had called “the long march through the institutions” and become the establishment. Meanwhile, the only institutions Mahler had marched through since his arrest in 1970 were a series of prisons in and around Berlin. After that, the political career the likes of Schröder and Schily pursued was an option closed to Mahler. He had, in effect, missed the party.

Strikingly, Mahler’s new world-view crystallised around diametric opposition to the politics of the 1968ers now coming into power. As they had moved into the establishment, they had moved away from their earlier radicalism, joining the Social Democrats -once the student movement’s sworn enemy -and then turning it into a centrist, business-friendly party that copied New Labour in many ways. Nevertheless, they now promised sweeping social change -above all, Schily’s reform of Germany’s antiquated citizenship laws to make it easier for second and third generation immigrants, particularly those of Turkish origin, to become Germans. It was in late 1997 -when it was already clear that the 1968ers’ time had come – that Mahler began to air publicly right-wing sympathies. With the 1968ers arrival in power the following year, Mahler’s rhetoric sharpened.

Mahler denies that his new politics is his revenge on his more successful contemporaries, whom he has variously described “traitors”, “swine” and “scum”. He would, of course. But whatever the truth, there is little doubt that Mahler would take special pleasure in defeating Schily in his attempts to ban the NPD -and maybe even bringing him down in the process. He reacted with barely concealed glee when it emerged last January that several NPD members due to give evidence against the party were in fact longtime government informants, badly damaging the government’s case and leading to calls for Schily’s resignation. “One day he is going to experience a terrible crisis,” Mahler tells me darkly, appearing to speak as much from hope as conviction.

Originally published in The Times Saturday magazine, March 22, 2003.