German potato salad

Fill a large pot two-thirds full with water, add salt and bring to a boil. Cook potatoes with skins on until just past crunchy, about 7 or 8 minutes. Drain and set aside.
Put the bacon and onions in a large, heavy skillet, and cook over moderate heat until the onion softens but does not brown, about 6 minutes.
Add the vinegar and sugar to the skillet and bring to a boil over high heat.
Mix the cornstarch with a few teaspoons of the water and make a smooth paste. Add the cornstarch paste to the skillet and mix well, scraping the bottom of the pan with a wooden spoon. Add the remaining water and return to a boil. Turn the heat down to low and continue to cook for 10 minutes, or until the mixture has a velvety texture.
When the potatoes are cool enough to handle, peel them, cut them into 1/4-inch slices, and place them in a large mixing bowl. Sprinkle with salt and pepper to taste. Pour the bacon and onion mixture, along with the beaten egg, over the potatoes. Gently mix all ingredients well; do not break the potato slices. Mix in a little additional vinegar to taste. Sprinkle salad with chives and serve warm.