It seems the problem is caused by poor installation and wires inside the steering column shorting out. The airbag light starts blinking rapidly and according to VW, you should stop driving immediately as the airbag may spontaneously deploy at any minute.

Luckily, we were right next to a dealership when this happened and just drove it in there.

They initially accused me of causing the malfunction, indicated it is NOT covered under warranty (um, I think an airbag deploying in my face while I am on the freeway IS a safety issue and should have triggered a recall...).

VW provided NO customer support.