We’re nearly two months into the dieselgate scandal.

So far, most of the attention has been on Volkswagen, the defenestration of some of its most senior staff and the likely financial impact on the company.

It has already declared a £2.5 billion loss for the third quarter of 2015, as it stacks up cash to pay for the massive recall work on the EA189 engine, as well as compensation and the likely fines from governments and regulators.

The wider VW Group has already hired Thomas Sedran from Opel to be the chief of corporate strategy and promises that the all-new vision for the VW Group will be revealed in the middle of next year.

However, a couple of recent news stories reveal just how much of a quiet panic the wider European car industry is in, now that the issue of diesel pollution is well and truly under the microscope.

VW admitted that it used a software ‘cheat’ to get its EA189-engined diesel cars through the US pollution tests, after the International Council on Clean Transportation revealed that real-world tests of the firm's diesel engines showed much higher NOx emissions than were revealed in lab tests.

Immediately, demands were made that all diesel vehicles should be tested in real-world conditions and not in lab situations. The same demands were made by some politicians in Europe, although there hasn’t been much said about this until yesterday.

Elzbieta Bienkowska, who is the European commissioner for industrial policy, released details of the new EU policy on emissions of nitrogen oxides from diesel cars.

With real-world pollution testing beginning in September 2017, Bienkowska and the Technical Committee for Motor Vehicles decided that NOx emissions from new vehicles can exceed the EU6 limits by up to 110% until January 2020.

It’s hard to see this as anything other than an admission that most car makers cannot meet the real-world NOx limits without some massive investments and on a timescale that might not be achievable.

Further pressure arrived from the US, when the mighty combination of Harvard University and the Massachusetts Institute of Technology declared that the 428,000 cheat diesels VW sold in the US would lead to 60 premature deaths.

NOx emissions are now even being blamed for contributing to a decline in the bee population. To say that diesel will be on the back foot from now on, is likely to be an understatement.

A couple of weeks ago I spent an evening with Peter Mertens, Volvo’s head of research and development. When pressed on the dieselgate issue, he assured me that Volvo could cover the issue by fitting urea injection systems on all its diesel vehicles, including C-segment (Golf-sized) cars. "So the urea injection engines cost another €1200, but that’s the solution," he said.

Which is okay, perhaps, when you are a premium car maker, with buyers willing to spend the extra money on the cleanest diesel motors. What happens, though, when half of your sales are of mainstream diesel models and your platform hasn’t been designed to accommodate a massive urea tank and the associated injection equipment?

Also, adding €1200 to the cost of a mainstream diesel car would completely upend the marginal profits on selling such cars in the hyper-competitive European new car market.

The EU law makers and the European car makers are now in a serious jam. If EU politicians demand that new diesel cars meet the real-world NOx standards by 2017, many mainstream car makers will be unable to comply, by being simply unable to re-engineer their vehicles in time.

If they can add urea injection, they could price themselves out of the market and/or lose significant sums on every diesel car sold.

Worse still, at least half of most car makers’ sales need to be diesel to have any chance of meeting the EU’s demand for a fleet CO2 average of between 85g/km and 105g/km by 2020.

You’ve got to have some sympathy for the car makers. They were encouraged to rush down the diesel route by EU legislation, which, unlike US laws, put fuel economy before clean air.

Now the EU looks like it could demand hyper-economy and clean air at a price the average European motorist can afford - an impossible task for many car makers.

Something is going to have to give. Bienkowska and her technical experts have concluded we have to play higher NOx levels against the reality of the economics of car production and the strict CO2 targets.

The next couple of years are going to be very interesting for the European car industry.