Merkel’s car nightmare

Merkel’s car nightmare

The VW emissions scandal turns Germany into an EU problem case.

By MATTHEW KARNITSCHNIG 9/24/15, 5:30 AM CET http://www.politico.eu/article/merkels-volkswagen-vw-scandal-car-industry-ceo-winterkorn/

BERLIN — Of the myriad crises to land on Angela Merkel’s desk in recent years — from Europe’s debt woes to the refugee emergency — nothing has confronted the German leader with the kind of challenge she faces in the emissions scandal engulfing Volkswagen.

“Germany’s entire auto industry is at stake here. And when it’s at stake, almost everything’s at stake,” Berlin’s Tagesspiegel newspaper, echoing an increasingly alarmist tone across German media, concluded.

The forced departure of VW Chief Executive Martin Winterkorn, who resigned under pressure late Wednesday, is unlikely to quell those worries.

Given the importance of the industry to the economy — some economists estimate it accounts for as much as a quarter of German output when including the long tail of services connected to the sector — the panic may be justified.

Europe, despite the schadenfreude now in the air, should also be concerned.

For the first time in recent memory, Germany isn’t the solution to the problem; Germany is the problem.

The implications of that dynamic will reverberate far beyond the auto industry and complicate Berlin’s efforts to resolve the other flashpoints testing Europe, be they economic or political.

Put simply, Germany has lost the high ground.

Germany Inc. rules Brussels

For years, Merkel, like her predecessors, has pushed to protect Germany’s car industry from regulation. Since Germany’s carmakers specialize in heavy limousines, that has meant trying to prevent onerous limits on emissions.

When Europe was about to agree to stricter standards two years ago, Berlin, acting at the behest of Germany’s automakers, intervened at the 11th hour, upending the five-year long negotiation by insisting the measures be softened.

Matthias Wissmann, a transportation minister under Helmut Kohl who now heads auto industry’s lobbying association, wrote to Merkel ahead of the decision, urging her to intervene.

Addressing Merkel as “Dear Angela,” Wissmann complained the “arbitrarily determined limits” jeopardized a “premium segment that accounts for almost 60% of the auto jobs in Germany.”

In the end, the carmakers got their wish.

On the face of it, there’s nothing out of the ordinary about a country trying to protect a core industry.

What has long raised eyebrows about Germany’s approach, however, is a perception of hypocrisy: Even as it pushed to water-down emissions regulations, it tried to force other countries to abandon nuclear energy and follow its “Energiewende,” a wholesale shift to green power.

While Berlin scolds other countries air quality standards, it subsidizes diesel at home to the tune of billions, trading air quality for fuel efficiency. The policy has been a boon for VW and Germany’s other carmakers, which have long excelled in the technology.

The pols drive Audis

The reason for the lax regulation, critics say, is the too cozy relationship between Germany’s top politicians and the auto industry.

“There is a strong link between the auto industry and politics and (the auto companies) think they can do whatever they want,” said Michael Cramer, a German Green in the European Parliament specialized on transportation.

It is impossible to deny the proximity of politics and the auto industry in Germany. During the week, Berlin’s government district is a blur of black Mercedes, BMW and Audi sedans. The industry grants the government special deals on its high-end wares. The industry doesn’t just benefit from the free advertising. The service also creates a personal connection between the politicians and their brands. Merkel, generally known for her simple tastes, prefers Audi’s top of the line A8 model.

Yet the connections between the carmakers and top politicians reach beyond the back seat.

Vice Chancellor Sigmar Gabriel, who is also Economy Minister and leader of the Social Democrats, sat on VW’s board for several years when he was governor of Lower Saxony. The German state, home to the carmaker’s headquarters in Wolfsburg, is VW’s largest shareholder. More than 100,000 people work for the company in Lower Saxony, making VW by far the region’s largest employer.

Gabriel also served as a consultant to VW, advising management on “European industrial policy” after he left office in 2003.

In 2013, Eckart von Klaeden, a top Merkel advisor, left government to become a lobbyist for Mercedes-Benz parent Daimler. He replaced Martin Jäger, a former top chancellery official who returned to government service and is now Finance Minister Wolfgang Schäuble’s spokesman.

In the past, Germans haven’t paid much attention to the industry’s cozy relationship with politicians. In Germany, a country largely devoid of national symbols, brands like VW evoke deep pride. That may be about to change.

Authors:

Matthew Karnitschnig