We use cookies to help improve and maintain our site. More information.
close

August 04, 2017

What the diesel saga tells us about the EU

Organisations evolve over time but never completely lose the ethos of their founding years. The European Economic Community was a corporatist construction designed to protect industries, seek access to German steel, and support farmers. The EU takes the interests of consumers more seriously today than it did in the 1950s and 1960s, but the interests of the corporate sector remain predominant.

The EU’s strategy on diesel was to be tough on regulation, but soft on supervision. The tests were a joke, and it is no surprise that the dieselgate affair was uncovered in the US. We would not go as far as to talk about a conspiracy. This is rather the result of old-fashioned interest peddling. The real victims of this are not only defrauded consumers, but a very large number people who suffered premature deaths as a result of urban pollution, for which car emissions are the main source. It is no surprise that polluted German cities like Stuttgart see no other way to meet their local emissions targets than to ban diesel cars that fall below an already out-of-date norm. Nor is it a surprise that the car industry chiefs meet with the German government to prevent this from happening. And it is even less of a surprise that the European Commission welcomes the result of Wednesday’s diesel summit as a first step. But this is a cartel that has undermined competition for two decades. If these were non-EU companies, we would treat them like criminal organisations. We would not hold summits with them.

The substantive issue is not whether diesel is doomed in the long run - even the German car industry accepts that - but how this should happen, and the time frame. The German car industry is not ready to supply the market with hybrid engines, let alone electric engines. Germany’s infrastructure is not suited to the electric car. Many people commute to work by car. Many companies and out-of-town industrial parks are not efficiently accessible by public transport. If your car industry operates like a cartel, the development of alternative technologies get suppressed. This works exceedingly well so long as you keep technological leadership. And it breaks down when the underlying technology changes or when there is a sudden shift in the structure of demand. This has many parallels to the iPhone vs Blackberry situation, with two exceptions. Nobody even tried to protect Blackberry. And the product cycles are longer.

What we do know is that the car of the future will have an electric engine, and lots of smart artificial intelligence. We don’t know yet whether Tesla is the new iPhone of the car industry, or just the useful idiot like the Sinclair computer. What we do know is that the German car industry is not at the forefront of either development. If diesel fines have one important commercial implication, it is to reduce the German car industry’s ability to corner the new market through a strategy of mergers and acquisitions. It is up against the likes of Google, and possibly Apple, whose market capitalisation is far too large.

The new competitors are not part of the cartel. They don’t hang out in auto shows. The developers have a different background than do the mechanical engineers of today's car industry today. So, there is no reason to believe that the German car industry will retain its fat profit margins. It will decline just like newspapers declined. It won’t disappear, but wither slowly. Diesel sales are falling fast, even in Germany. Salaries will eventually come under pressure, and the most talented engineers and scientists will seek alternatives. What we do know is that Germany is absolutely unprepared for this development. 

In this context, we noted a comment by Marcel Fratzscher, who argues that Germany is preaching free trade at G20 summits, but is practicing protectionism at home when it blocks foreign takeovers of companies that own certain key technologies. He says the veto right is ill-defined, and thus particularly potent because politicians use it at their discretion. Germany, and the EU as a whole, are prioritising protection over innovation.

We would like to add the following observation. One would have thought that a country with a current account surplus of over 8% would be more consistent in its attitudes but the surplus is to a large extent the result of various of industrial forms of protectionism and macroeconomic mercantilism, such as depressing wages relative to its trading partners. These policies work successfully until they don’t. Mercantilism is what links the troubles of the eurozone and those of the car industry. Neither is sustainable in the way it is currently managed.

Show Comments Write a Comment

This is the public section of the Eurointelligence Professional Briefing, which focuses on the geopolitical aspects of our news coverage. It appears daily at 2pm CET. The full briefing, which appears at 9am CET, is only available to subscribers. Please click here for a free trial, and here for the Eurointelligence home page.

 

Recent News

  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • September 18, 2017
  • Why Germany cannot lead Europe, let alone the free world
  • Will Macron help to build up Mélenchon?
  • Boris' Coup
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • January 07, 2019
  • What to look out for in the Brexit debates
  • Macron's last-resort tool for the gilets jaunes
  • August 31, 2017
  • Where are the Républicains?
  • Poland unmoved by EU rule-of-law sanctions
  • May will stay through Brexit, and then fight the 2022 elections
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • December 12, 2018
  • 48 letters
  • A sense of deja-vu
  • August 21, 2017
  • Soft, getting softer
  • Tsipras' chances of a boost
  • On the fallacy of a middle-ground option for the eurozone
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • October 29, 2018
  • Why the EEA is no longer a Brexit option
  • Behold the rising superpower: post-catholic Ireland’s European miracle
  • July 27, 2017
  • Löfven's move
  • The nearing end of petrol and diesel engines
  • Why a second referendum in the UK won’t happen, and why it would be wrong
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • September 25, 2018
  • Be careful what you wish for - second referendum edition
  • July 10, 2017
  • EU in self-destruction mode
  • The EU's fault lines
  • Fake News and Fake views
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • August 20, 2018
  • ... and a subtle shift in EU policies towards both Russia and Turkey
  • Nothing to celebrate about the end of the bailout programme
  • Support for Brexit holding up
  • June 20, 2017
  • How to soften Brexit?
  • The deep roots of Brexit: Thatcher and the Germans
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • July 09, 2018
  • German panic about Target2
  • AfD level with SPD
  • How the EU could fail
  • May 31, 2017
  • Getting real in the debate on the euro's future
  • Russia's growing influence in Italy
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • May 28, 2018
  • A no-confidence motion that could backfire
  • The political repercussions of a historic referendum in Ireland
  • Why the lack of an international role for the euro matters
  • May 10, 2017
  • PSOE primary campaign in full swing
  • Czech government crisis escalates
  • Backroom dealing on electoral reform in Italy
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • April 13, 2018
  • German support for eurozone reform next to zero...
  • ... and no support for France on Syria either
  • A French sermon
  • Why the euro endures
  • April 19, 2017
  • Shadows of money
  • Breppe Grillo vs Eurointelligence
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • February 26, 2018
  • Angela Merkel's cabinet
  • March 27, 2017
  • Governing formation troubles - Northern Ireland edition
  • Did Trump present Merkel with a bill for Nato?
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • November 13, 2018
  • Peak Salvini?
  • Protest uberisation
  • January 05, 2018
  • Catalonia's government by Skype
  • The case for EEA membership
  • February 28, 2017
  • Is Hamon losing the right wing of his party?
  • Something we just don’t understand
  • Solve the problem
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • August 28, 2018
  • Urban politics and national crisis - the Irish case
  • How anti-semitism became one of the main issues in British politics
  • November 13, 2017
  • A pro-European list: Wauquiez' nightmare
  • Catalan separatism isn't going away
  • Why oh why does Germany behave the way it does?
  • Why the four freedoms matter
  • February 01, 2017
  • Do Republicans have a plan B if Fillon falls?
  • Unforgiven
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • May 31, 2018
  • Hans Werner Sinn demands German euro exit
  • The politics of the SPD’s links to Russia
  • September 18, 2017
  • Why Germany cannot lead Europe, let alone the free world
  • Will Macron help to build up Mélenchon?
  • Boris' Coup
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • September 21, 2018
  • SPD ministers want to continue grand coalition
  • February 12, 2018
  • What the euro debate is really about
  • How Brexit can still falter
  • July 06, 2017
  • On Merkel’s imperial overreach
  • When the opposition opposes to oppose
  • Everybody wants the medicines agency
  • November 29, 2016
  • On the politics of the Italian referendum
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • October 08, 2018
  • A renewed willingness on both sides to cut a Brexit deal
  • Latvian politics in turmoil after huge populist gains
  • April 10, 2018
  • A mood of radicalisation in France
  • The German far right makes inroads into trade unions
  • On the absurdity of a new centrist party in British politics
  • October 12, 2017
  • Panicking in London
  • Gabriel's unbearable hypocrisy on the eurozone
  • April 15, 2017
  • Happy Easter
  • October 19, 2016
  • Walloons stand firm
  • Juppé and Macron - father and son?
  • J’ai vraiment dit ça?
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • October 04, 2018
  • The Brexit Queen’s new dancing clothes
  • Ceci n’est pas une crise politique
  • May 28, 2018
  • A no-confidence motion that could backfire
  • The political repercussions of a historic referendum in Ireland
  • Why the lack of an international role for the euro matters
  • January 19, 2018
  • On the futility of discussing the German current account surplus
  • The Brexit revocation madness
  • Varadkar, the enfant terrible in the Brexit negotiations
  • September 14, 2017
  • Bravo Mr Juncker
  • ... what he said about the labour market
  • ... and what his speech means for Brexit
  • May 11, 2017
  • Germany rejects IMF’s policy recommendations before they are issued
  • Why Labour is losing
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • August 26, 2016
  • Will the refugee crisis return?
  • Montebourg en avant
  • Moisi on Sarkozy's chances
  • Binary choices
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • January 14, 2019
  • Our Brexit predictions
  • 1789 - Macron's version
  • Tsipras calls confidence vote after Kammenos pulls out
  • December 12, 2018
  • 48 letters
  • A sense of deja-vu
  • November 13, 2018
  • Peak Salvini?
  • Protest uberisation
  • October 15, 2018
  • Black Brexit smoke
  • Bettel can relax and stay in office
  • Solving the crime vs solving the problem
  • September 17, 2018
  • About the new partnership between Russia and China
  • EU ponders Irish backstop protocol to help May
  • August 20, 2018
  • ... and a subtle shift in EU policies towards both Russia and Turkey
  • Nothing to celebrate about the end of the bailout programme
  • Support for Brexit holding up
  • July 13, 2018
  • Can Spain's PP turn eurosceptic over Catalonia?
  • June 18, 2018
  • Some thoughts on the future of Europe
  • The end of Spanish income moderation?
  • May 23, 2018
  • Mattarella’s limited options
  • April 30, 2018
  • Looming May protests against Macron
  • France has discovered the Laffer curve
  • An important resignation in the UK
  • April 09, 2018
  • Orbán gets his supermajority
  • Riding the wave of resistance
  • The EU’s self-defeating strategy
  • March 19, 2018
  • Waiting for Germany
  • Russia’s friends
  • Can the Commons force an extension of the Art 50 period?
  • February 27, 2018
  • Irish transport prepares for Brexit scenarios
  • One last Dutch referendum
  • Is the CDU a conservative party?
  • February 09, 2018
  • Is the Labour Party shifting towards a customs union?
  • January 22, 2018
  • Carles Puigdemont's flying circus
  • Macedonia and the insurrection of Greek patriotism
  • On the real hurdles for Brexit revocation
  • And the satellites, too
  • January 05, 2018
  • Catalonia's government by Skype
  • The case for EEA membership
  • December 19, 2017
  • German pre-coalition talks to conclude mid-January
  • Shall we talk about Brexit?
  • December 04, 2017
  • Can Brexit still be stopped?
  • Could Poland open up the Posted Workers Directive again?
  • Has the Bank of England solved the productivity puzzle?
  • November 20, 2017
  • Showdown over Northern Ireland
  • Castaner and his list confirmed
  • Gennimata to lead the new left alliance
  • Brexit‘s ultimate irony
  • November 07, 2017
  • Don’t believe everything German politicians tell you
  • The Paradise Papers and Leprechaun Economics
  • Where is Macron's left in the majority?
  • Too-big-to-fail supermarket threatens Croatian government
  • October 27, 2017
  • What exactly happened in Catalonia yesterday?
  • Transactional versus strategic foreign policy
  • October 16, 2017
  • What‘s the deep meaning of the elections in Lower Saxony?
  • Can Brexit be revoked?
  • Macron's grand narrative
  • October 04, 2017
  • On why Theresa May is likely to survive
  • On how to resolve the Brexit talks
  • Social housing - not a good start for the French government
  • September 25, 2017
  • Where does this leave eurozone governance reform?
  • Is Mélenchon losing his momentum?
  • Lost in Florence
  • September 18, 2017
  • Why Germany cannot lead Europe, let alone the free world
  • Will Macron help to build up Mélenchon?
  • Boris' Coup
  • September 11, 2017
  • Turkey issues travel warning for visitors to Germany
  • How nasty is the AfD?
  • September 04, 2017
  • Dutch referendum: never again?
  • Why trade unions stay quiet on French labour reform
  • August 29, 2017
  • The deep significance of Labour's Brexit U-turn
  • The day after the SPD loses
  • August 25, 2017
  • Whatever happened to red-red-green?
  • Reshuffle - Greek edition
  • Is the Norway option really dead?
  • August 23, 2017
  • Is Macron neo-protectionistic?
  • No, it is not easy to get rid of the stability pact
  • August 21, 2017
  • Soft, getting softer
  • Tsipras' chances of a boost
  • On the fallacy of a middle-ground option for the eurozone