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Powerful nations provoke resentment–particularly when they frighten their neighbors. Germans know this all too well. World War II ended 70 years ago, and younger generations have built a strong Germany on an entirely new foundation. German political and economic leadership has been indispensable for Europe. Yet stereotypes persist.

That’s why the Volkswagen scandal is so damaging to Germany’s image and its leadership in Europe, particularly at a time when genuine generosity toward Syrian migrants had begun to change the image of the heartless German. This is a story that goes far beyond the cartoonish notion of frosty German indifference to outsiders. It is one of superbly engineered deception, with 11 million VW diesel cars fitted with special software that enabled them to cheat on emissions tests.

But the scandal is also one that reflects poorly on German politics. The country’s automotive industry dominates the German economy. It employs 750,000 people, and the combined revenue of Volkswagen, Daimler and BMW is considerably larger than Germany’s entire federal budget. That gives the German auto industry exceptional political influence.

The auto-industry lobby allegedly uses that influence to help German automakers avoid regulatory burdens and escape scrutiny. This is reportedly not the first time that a gap between laboratory and real-world emissions has been suspected in Germany and elsewhere in Europe. So far, there is no evidence that senior German officials knew what VW was up to. Whether they should have known is another question. Fairly or not, the perception will grow that Germany doesn’t play by its own rules.

That’s a problem, because Europe and the world need strong and steady German leadership–on reform of the euro zone, on the refugee crisis and on other challenges facing Europe. The brazen deception at the heart of the VW scandal will make it difficult for Germans to argue that they enforce tough choices for the common good. It will be harder for Germans to complain that other governments aren’t honest about their reform efforts, to cast Putin as an aggressive liar or Americans as duplicitous spies.

This story is not going away. After the U.S.’s exposure of the scandal, Britain, France, Italy, Canada and South Korea announced investigations. All these countries have faced corporate scandals of their own, some with a political dimension. None have clean hands. But German industry was supposed to be above this sort of thing–or at least too smart to get caught.

This appears in the October 12, 2015 issue of TIME.

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