The Pan-European Shockwaves of Volkswagen’s Faltering

Airbus – the European half of the bitter transatlantic commercial airliner industry’s duopoly – is the often-touted poster child of connectedness in Europe’s grand experiment of economic integration.  Its facilities dot the continent, with a pan-European supply chain that sees exceedingly-dispersed specialization in a way that can only exist thanks to the trade freedom allowed by the European Union’s single market.

Yet, Airbus is only the most visible of an entire class of firms that have increasingly evolved to take advantage of the EU’s lack of barriers. German auto titan Volkswagen is one such firm, with a corporate structure that cements the manufacturer in nearly every European market, through both its eponymous brand and the spider’s web of subsidiaries and suppliers over which it presides.

It is precisely that characteristic breadth of operations and subsequent rootedness in the pan-European economy, however, that makes the fact of Volkswagen’s recent embroilment in a major scandal over falsified emissions data so disquieting for the entire continent.

The controversy began with a Notice of Violation issued by the American Environmental Protection Agency (EPA) on September 18 accusing Volkswagen of cheating on emissions tests.  The accusation followed studies by scientists at West Virginia University which revealed that Volkswagen cars are equipped with a certain model of diesel engine that emits nearly forty times more toxic nitrogen oxide than is permitted by U.S. standards. The EPA investigation consequently revealed that all models of the engine built between 2009 and 2015 – some 11 million cars across the world – were fitted with a so-called “defeat device,” which would detect emissions test conditions and alter the running of the engine in order to fake a pass.

With the revelation came the prospect of an $18 billion fine from the EPA, massive plunges in Volkswagen’s stock price, and an array of brewing lawsuits that are likely to evolve into years of headache for more than just former Porsche head Matthias Müller, the man set to replace the group’s newly-resigned CEO.

Even Switzerland, one of the most tenuously integrated members of the single market – not through EU membership, but rather a myriad of bilateral treaties and agreements – is bracing itself for the repercussions, with Economy Minister Johann Schneider-Ammann commenting, “We too have a Rhine valley in our country, with manufacturers of components and suppliers for the German automobile industry … a collapse in demand would have a direct impact on these suppliers.”

Preliminary estimates predict that nearly 24,000 Swiss jobs are at risk should Volkswagen falter. The effects are likely to be greater still in the seventeen European countries in which Volkswagen operates directly owned production plants.  Moreover, the Volkswagen scandal has even shed light on what may prove to be an industry-wide issue, and other European auto manufacturers could find themselves under scrutiny for similarly systematic emissions discrepancies.

Turmoil in the auto industry, and the accompanying economic strife, could not come at a worse time for Europe. Burdened with crises in all spheres, critics are increasingly pointing to these pan-European shockwaves as the soberingly volatile flipside to prosperity through economic unity. That Volkswagen’s home is in Germany – widely regarded as the resolute center of mass of the European Union, and whose slightest sign of weakness inescapably puts question marks on the project as a whole – only adds to the unease.

Though Euroscepticism’s stellar ascent into the political mainstream has somewhat floundered of late, the prospect of yet another trial for the European ideal is a gift to those wishing to break from Brussels. For Europhiles, however, an unassured Europe plunged into fresh soul-searching is a nightmare.  They can only hope, though, that the tables tilt towards renewed strength in badly, badly-needed unity.