Facing The Specter Of Bankruptcy, Volkswagen May Get A Reprieve From Europe

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Chris White Tech Reporter
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German-based automaker Volkswagen (VW) is suffering a tidal wave of U.S. fines over its emission scandal, but government officials in Germany and Europe are taking a softer approach, perhaps as a way to protect an economic powerhouse, sources told Reuters over the weekend.

In September, VW acknowledged it installed a type of “defeat device” that curbed smog-producing nitrous oxide emissions of several of its most popular vehicles, including the Beetle and Porsche Cayenne. It is believed that the smog-inducing gas causes ground-level ozone and global warming, as well as asthma and other respiratory illnesses.

The European Union, for its part, outlawed the “defeat devices” in 2007, but, according to EU sources, the bloc’s hodgepodge of environmental regulatory agencies do not have a defined set of penalties for using the devices.

The sources believe it is unlikely that VW will face the same kind of scrutiny or stout fines that the U.S. has doled out thus far. All told, if the fines and lawsuits leveled against VW top $50 billion, as some believe possible, then the German automaker faces the real possibility of being rendered bankrupt by the scandal.

In order to deal with the cavalcade of lawsuits — numbering 25 in all — the company has set aside $8 million in a legal fund, as well as hired the same firm that represented British Petroleum after the Deep Water Horizon oil spill debacle.

Sources also tell Reuters that there is an “unwritten rule” among the 28 EU states that some financial firms and institutions are too important to Europeans, thus making them essentially immune to the kind of rigid financial penalties seen in the U.S.

“In general when companies are already in great difficulties due to some crisis, European governments tend to be understanding and will not necessarily seek the imposition of all possible penalties,” Lucas Bergkamp, a partner at law firm Hunton and Williams in Brussels told reporters.

VW is one of Europe’s largest automakers, employing more than 750,000 people in Germany. The country’s three largest automakers — VW, Daimler (DAIGn.DE) and BMW (BMWG.DE) — raked in  $451 billion in 2014, essentially dwarfing Germany’s entire federal budget, which is a fraction under $300 billion. The bankruptcy of VW, therefore, could potentially devastate the German economy.

The asymmetry between the U.S.’s reaction to the scandal and that of Europe was on full display last week, when VW officials, citing German privacy laws, refused to fork over to the Justice Department internal emails related to he emissions scandal.

German investigators, then, said the Federal Data Protection Act, which restricts giving data to institutions or people outside of the European Union, gave them immunity from the U.S. attorney’s request. Along with citing the country’s privacy laws, VW also used the German Constitution, and the European Convention on Human Rights to deny email communiqué to U.S. investigators.

VW’s actions, a report in the New York Times on Friday stated, make it difficult for the Department of Justice to determine the executives and employees responsible for the carbon emissions scandal, which U.S. attorneys say violated the Clean Air Act.

The scandal, environmentalists believe, has exposed a blank spot in Europe’s ability to regulate the auto industry. There is no equivalent to the US-based Environmental Protection Agency (EPA) in the EU — instead the bloc relies on a scattershot of 28 different agencies, all with different standards, to regulate carbon emission testing.

The European Commission has noted the regulatory mess, suggested proposals it thinks will give the EU’s carbon emission regulations a new, more beefed up look.

The Commission’s primary proposal, according to Reuters, faces a nearly 2 year (18 months) vetting process from the European Union — but if and when it’s passed, it would allow the European Commission the authority to confirm that firms like VW and Daimler are conforming to the carbon emission standards, and hit them with defined penalties for non-compliance.

Even government lawyers were hatching litigation against VW in the U.S., the EU gave the German auto giant a reprieve, granting it until the end of January to explain why its carbon emissions were higher than previously stated.

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