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 It was the spring of 1995 and the newly appointed environment
minister was trying to convince her cabinet colleagues to back a
bold new set of anti-smog rules that included tougher speed limits
and summer driving bans.
But Matthias Wissmann, the transport minister with close ties to
industry, was having none of it. He questioned whether Merkel's
measures would cut pollution levels at all and vowed to fight any
attempt to impose speed limits on the Autobahn.
Wissmann's argument won the day, reducing Merkel to tears, according
to a 2010 biography by Gerd Langguth. For the ambitious young
minister from the communist East it was a lesson about how politics
worked in a united Germany.
Much has changed in the intervening years. Merkel is now in her
third term as chancellor. Wissmann heads the Verband der
Automobilindustrie (VDA), the influential lobby group for German
automakers.
But there is one constant: the clout of the auto industry in German
politics.
 This relationship, which some describe as symbiotic, bordering on
incestuous, is in the spotlight now, as Volkswagen <VOWG_p.DE>, the
country's largest carmaker, reels from an emissions scandal that has
forced out its long-time CEO Martin Winterkorn and sent its stock
careening lower.
There are no indications that German politicians were aware that VW
was rigging its diesel emissions tests. Merkel and her leading
ministers have expressed surprise and indignation at the
revelations, urging VW to clear them up swiftly.
But authorities in Germany and elsewhere in Europe had known for
years about the widening gap between emissions values measured in
official laboratory tests and those recorded in a real-world
environment.
Yet, critics say, Berlin fought hard to shield its carmakers from
closer scrutiny and, in a high-profile clash with its European
partners two years ago, from tougher emissions targets. Merkel has
defended the stance as necessary in order to protect jobs in the
sector.
Some see the VW scandal as symptomatic of a deeper problem in which
German car companies have been allowed to do as they please without
oversight or fear of reprisals from Berlin.
"The Volkswagen scandal is a warning shot to the politicians," said
Christina Deckwirth of Berlin-based Lobby Control. "It shows they
need to spend less time protecting the auto industry and more time
overseeing it."
POSTER CHILD
There are good reasons why Berlin stands by its car companies.
The industry employs over 750,000 people in Germany, has been a
poster child for German engineering prowess and dwarfs other sectors
of the economy.
In 2014, the big three carmakers, Volkswagen, Daimler <DAIGn.DE> and
BMW <BMWG.DE>, hauled in revenues of 413 billion euros, far bigger
than the German federal budget, which stood at just under 300
billion.
This has bred a cozy relationship between the industry and
politicians. Top auto lobbyist Wissmann is a veteran of Merkel's
Christian Democratic Union (CDU) who, despite their cabinet clash 20
years ago, uses the familiar "Du" with the chancellor.
Daimler's <DAIGn.DE> chief lobbyist is Eckart von Klaeden, a senior
CDU politician who worked under Merkel in the chancellery and whose
abrupt switch to the Mercedes manufacturer in 2013 prompted an
investigation by Berlin prosecutors and new rules on "cooling off"
periods.
His predecessor at Daimler was Martin Jaeger, now spokesman for
Finance Minister Wolfgang Schaeuble.
The ties cross party lines. Thomas Steg, a former spokesman under
Social Democrat (SPD) chancellor Gerhard Schroeder, heads up
government affairs at Volkswagen. Even former foreign minister
Joschka Fischer of the environmentalist Greens has done ads for BMW
<BMWG.DE> in recent years.
The political connections are particularly strong at Volkswagen,
whose arcane shareholder structure is laid out in the "Volkswagen
Law" which dates back to 1960 and has faced repeated legal
challenges at the European level.
The law effectively shields the company from takeovers and bestows
hung influence on Lower Saxony, a state in central Germany that owns
a 20 percent stake in VW and has been a stepping stone to national
power for countless politicians.
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Premiers of Lower Saxony who have sat on VW's board include
Schroeder, nicknamed the "Auto Chancellor", current Vice Chancellor
Sigmar Gabriel and former president Christian Wulff.
When Schroeder launched his far-reaching reform of the German labor
market in 2003, he turned to Peter Hartz, the human resources chief
of VW, to steer it.
Years later, Hartz was at the center of another major scandal to hit
VW, a tale of corruption involving lavish company trips for employee
representatives, including visits to prostitutes. He received a
suspended sentence and a fine.
The VW scandal has also exposed the toothlessness of Germany's
regulatory regime, opposition parties and industry experts say. The
main oversight agency for the car sector, the Federal Motor
Transport Authority, falls under the Transport Ministry in Berlin,
raising questions about its independence and readiness to police the
sector.
"The worst of all is that the automobile industry was left to do
these tests themselves, there was no control," Oliver Kirscher, a
lawmaker for the Greens said in a debate in the German parliament on
Friday.
Industry group the VDA rejects the idea that controls were lax and
says it has been pressing for reform of the test regime for
emissions “intensively and constructively” for years.
EMISSIONS FIGHT
Unlike her predecessor Schroeder, Merkel has no direct ties to the
car industry.
But her stance has clearly evolved since her days as an environment
minister under Helmut Kohl.
Back in 2009, in the months before she would run for a second term,
she oversaw a controversial rescue - which later unraveled - of
German carmaker Opel, going against the advice of her economy
minister, who had argued that the General Motors <GM.N> unit should
be allowed to go bankrupt.
Four years later, in the run-up to the next election and amid heavy
pressure from the VDA, her government lobbied aggressively in
Brussels - even threatening other countries in order to win their
backing, according to diplomats - to water down new European rules
on CO2 emissions that Daimler and BMW opposed. In a “Dear Angela”
letter that later leaked, causing an uproar in the German media,
Wissmann urged Merkel to fight the more ambitious targets.
"I think we need to ensure that in our drive to protect the
environment we are not damaging our own industrial base," Merkel
said at the time.
Months later, and only weeks after Merkel had won a third term, her
party received donations totaling 690,000 euros from the family that
controls BMW. The news sparked a backlash from opposition parties
and the German media. The CDU said the money had "no connection to
any political decisions".
Critics say that by doubling down on its premium carmakers and
heeding their warnings about introducing ambitious emissions
targets, Berlin has unwittingly discouraged innovation and harmed
the industry's long-term prospects.
Germany is a laggard on electric cars and is widely expected to miss
a target of selling 1 million by the end of the decade.
"Until now the German auto industry has been handled with kid gloves
by the politicians," said Klaus Mueller, head of the Federation of
German Consumer Organisations.
"Emissions targets were set at less than ambitious levels and
agreement on new testing rules was delayed. Even worse, there was no
mechanism for overseeing whether legal emissions limits were being
met, at the cost of the environment and the consumer, as the VW case
has now shown."
(editing by Janet McBride)
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