A New Divide

"It's even more serious than economics because if you rob people of their identity, if you rob them of their democracy, then all they are left with is nationalism and violence. I can only hope and pray that the Euro project is destroyed by the markets before that"

With these words back in 2010 Nigel Farage described his opinion on the current situation of the European Union. These words and many other speeches of Mr. Farage and the UK Independence Party left the European Union and the United Kingdom in a very unstable situation.

The European Union has always been the symbol of political and economical integration and co-operation. The Union is founded on the values of respect for human dignity, liberty, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. The Union with the Schengen agreement has allowed the free movement of people and goods and services across Europe.

Nevertheless, during a warm midsummer night in Finland, the United Kingdom decided to vote for leaving the European Union in a referendum. The stock markets all over the world crashed and the dollar strenghed against the euro as suspected. The signs of danger are floating in the air. Currently I'm waiting for the reaction in the Helsinki Stock Exchange on Monday when it opens its doors for the first time after the referendum because of the Midsummer.

51,9% of the Brits voted for leaving the European union in a referendum and 48,1% voted against leaving. The referendum was unbelievable close, and the regional totals are illustrated in the figure below. The blue regions represents the votes for the membership and the red regions against the membership.

One of the major concerns of the referendum is that there have been lots of votes from people who actually don't know about the dilemma. As far as I have heard from my friends who currently study in Great-Britain, students and young people in the cities were definitely for the EU and the against votes have mostly come from older people from the countryside. Noticable is also that immediatly after the vote a lot of people in the UK started to google to "what is EU". After they had already voted.

The results of the referendum are disturbing and will cause a lot of uncertainty and instability. The first source of instability is that Northern-Ireland and Scotland were "for the EU" where Wales and England were against the EU. As we already know from history, Northern-Ireland with IRA has been for years against the United Kingdom and Scotland just recently voted for its independence. The EU-referendum doesn't just pose threat to the European Union, but also for the United Kingdom.

The European Union is facing a crisis like never before. The Greek debt crisis has been going on for years, Italy is in the edge of a similar debt crisis and the immigrant crisis is causing the rising levels of nationalism and extreme right governments in Europe. If one state wants to leave the Union, that tells from significant faults in the Union. The European Union now has a tough job to maintain its position as the ultimate representative of peace, co-operation and liberty.

Brexit is an example to other countries as well who might not be satisfied for the current politics of the EU. The Greek debt crisis has been one of the major sources of EU-criticism in Finland for example. The common man wants Finland's own currency back and wants the money to stay within the borders of the state which is currently in a economic slowdown. The countries in Europe have been almost demanding the resignation of Greece from the Union. Could Greece be next? Or someone else? Only time will show.

One of the major advantages for the UK is the pound. The pound has been strong against the euro and the dollar and the country has maintained its own independent monetary policy with its own central bank. It's one of the rare countries inside the EU that has still its own currency. In case of abandoning the EU, the economic situation in UK might remain relatively stable because of this. But if a country with euro as its currency, for example Greece, the costs of resignation will be much, much more devastating. The country would have to create its own currency from scratch and would face even bigger problems trying to resolve their debt for the Union. United Kingdom has the financial strength to survive in this case.

My personal belief is that the abandoning wont happen in a 2 years or so. The problem most likely will be pushed for the next government to handle. Because the vote was so close, there is no guarantee that the Brexit would 100 % still happen. However, the results of the referendum still tell from the current state of the European Union; the Union is facing significant problems and the members are very unsatisfied. Something needs to be done and needs to be done fast.

Back in my economics-lessons in 2010, I stated that the European Union will face dissolution within 10 years. We will see if I turned out to be right, but I really wish I was wrong.

Text: SW
Pictures don't belong to me

Der Betrug

If there’s one thing you should know about me, is that I’m 100% petrol head. Ever since I was a child I always liked to play around cars and motors. So as you might think, if someone's so passionate about something for 20 years or so, some kind of a knowledge of the matter is starting to develop. That’s why for me personally, the great hoax from Volkswagen AG didn’t come as a surprise.

Last autumn Volkswagen AG got caught from installing devices that trick emissions testing into its cars. Getting caught from the hoax has had its huge effects on the company: United States’ Department of Justice is planning to sue Volkswagen for claiming falsely that the cars are environmentally friendly, the sales of Volkswagens around the world have declined, the revenue of VAG has decreased, the value of the stock has decreased over 30 % and the reputation of the reliable and humble car brand is now gone.

For the past century, Volkswagen AG has been one of the most prestigious and biggest car manufactures on the world. Audi, Skoda, Porsche, Bentley, Volkswagen, Seat and Lamborghini are all part of the massive group, for instance. In 2007, VAG produced over 6 million cars, over 10 % of the global car production. Volkswagen also held a 19,9% non-controlling shareholding in Suzuki, but the shares were bought back by Suzuki just a couple hours after the emission-hoax was revealed.

The image of the company has always represented quality, integrity, fairness and simplicity. After all, the word “Volkswagen” stands for “people’s car” which indicates the down-to-earth brand that Volkswagen represents. But the most crucial values of Volkswagen have always been responsibility and sustainability. Those values are closely linked into the current rising trends in consumption: The modern consumer tends to be more environmentally aware than before and wants to make an effort towards sustainable development.

The car industry is a type of industry which tends not to suffer from the lack of demand. Cars and personal mobility have been important to people ever since the combustion engine was put on wheels, but the modern consumer also has more options than before and it is even harder to make a choice between different cars. This is the fact that causes the fierce competition in the industry; the manufacturers must find the correct market-segment that would serve their purpose in the most effective way.

Where BMW focuses on dynamicity and Mercedes-Benz to luxury, Volkswagen realized in a very early stage the rising trends of environmental awareness among the consumers and chose to focus on responsibility and sustainability. Volkswagen took a conscious risk by desperately trying to cut the emissions lower than the levels of its competitors. Installing the debated devices into its cars in a fierce competition, this was the competitive advantage of Volkswagen and it worked perfectly. Until it caused a major disaster.

As illustrated in the figure above, you can clearly see the development of the Volkswagen preferred shares from 10 years in the Frankfurt stock exchange. From 2005 the value of the firm has boomed apart from the depression of 2008. The fall during the autumn 2015 is considerable: from almost 250€ to 94,02€ in just a couple of days. It is reasonable to state however, that the share price and the net profit of are still above the level of 2005 for example so the firm isn’t as screwed as everyone thinks. But the fact is, that after the allegations and the upcoming bill from the angry consumers and from the U.S government, the next crash is just around the corner.

To get themselves out of this mess, Volkswagen AG needs to assess some serious actions. If the company survives from its fines, it still has a lot to do to gain its image, customers, revenue and reputation back if it’s considered even as possible. The truth is, that the scandal will rumble the firm for years to come. This scandal can be the end of the tale of Volkswagen in the worst-case scenario.

The scandal will also rumble the whole car industry for years to come. In an industry where all the manufactures take great pressure from environmentalists and try to make their cars as environmentally friendly as possible to gain revenue through good reputation, there always exists a danger for the existence of similar kinds of hoaxes. Already BMW, Mercedes-Benz and Renault have been alleged to cheat in their emissions as well. The whole industry is standing on its toes and trying not to make a wrong move.

Environmental awareness is truly a significant trend and the effects of sustainable development in an economy should not be underestimated. The whole economy will value environmentally friendly products and services even more in the future when the raw-materials and other resources become more and more scarce. That’s why also the car industry needs to make its effort as a considerable source of emissions.

I’d like to end this blog to a question: When was the last time you saw a TV-commercial from Volkswagen? Was it different than the ad with a bee in the Golf you could saw before? I personally haven’t seen a single Volkswagen ad in TV for the past 6 months. The next time you see a new Volkswagen-commercial, try to see the deeper meaning and smell the ugly desperation that could clearly drip from the words and images of the ad.

Volkswagen. Der Betrug.

Text: SW
Pictures don't belong to me.