Hello;  I had a similar problem in one of my old Norton's in 85.  The
ground terminal had broken off somehow,  and disappeared inside the
cylinder.  The performance gradually deteriated until I pulled it apart to
find the piston almost chewed right through.  The piece eventually embedded
itself in the piston, and did no further damage.  The terminal had spent
some time eating through the exhaust valve seat, so compression was
non-existent by then.
 The Norton was an upright twin, the VW's cylinder are horizontal which
would make it unlikely that the terminal would embed in the piston.
Another possibility, the piece might have blown right through into the
muffler.  I've had this happen on my old Cushman Road King (I'll bet no one
has one of those). This was a Flathead engine, vertical single.
Luckily, I've never had this problem on a VW engine.          Larry Carter