BRUSSELS — France and Germany said Friday they had struck a deal to favor European-made cars under a landmark EU industry bill in exchange for weakening a 2035 vehicle emissions target, ending months of wrangling between the bloc’s two biggest economies.

Under the agreement, Germany would accept stricter “Made in Europe” — or local content — requirements for the automotive industry in the proposed Industrial Accelerator Act, a longstanding French demand, while France would back Berlin’s push to relax the EU’s plan to phase out new combustion-engine cars.

The EU’s current target is for companies to reduce emissions from new vehicles by 100% from 2021 levels by 2035, with the possibility to “earn” 10% of emissions leeway through initiatives like offsets and investments.

France and Germany now want to soften the 2035 target to 90% but without having  to offer investments in alternative fuels to compensate the remaining 10%, as proposed by the European Commission.

“This balanced approach will enable the European Union to pursue its climate objectives while strengthening the technological sovereignty, industrial base and international competitiveness of its automotive industry,” the two countries said in a joint statement.

The agreement, first reported by POLITICO in July, was due to have been announced Thursday, during a meeting of EU leaders in Brussels. But it was held up at the last minute by disagreements within Germany’s governing coalition.

“We hope that this Franco-German dynamic can swiftly lead to an agreement with our partners, for our jobs and our industry,” French President Emmanuel Macron said in a post on social media.

An Elysée official on Friday made clear that, under the Franco-German deal, the scope of Made in Europe for automotive can be extended to the U.K. and Switzerland under certain conditions. — addressing a key concern of Prime Minister Andy Burnham’s government ahead of a Nov. 20 U.K.-EU summit in Brussels.

The agreement was reached after the German Social Democratic Party, the junior partner in Chancellor Friedrich Merz’s coalition government, dropped its opposition.

“This is a modern realignment of German industrial policy that places significantly greater emphasis on preserving jobs and production sites,” said German Environment Minister Carsten Schneider, who is from the SPD.

“The clear expectation for German companies is that they will use these new opportunities to make investments and guarantee jobs here in Germany,” he added.

CORRECTION: This article was updated on Oct. 16 after an earlier version misrepresented the figures in the Franco-German proposal on the softening of 2035 targets.

BRUSSELS ― António Costa is supposed to be the dealmaker who brings European leaders together. Increasingly, his efforts are going unrewarded.

At a summit of the bloc’s national leaders on Thursday, Costa — who, unlike most of the EU’s current big beasts, is a Socialist — suffered his most stinging criticism since taking the role of European Council president nearly two years ago. The ire centered on his handling of unrelated negotiations over curbing energy prices and the EU’s next seven-year budget.

Governments were looking for both debates to show signs of progress at the two-day gathering, which was scheduled to continue on Friday. What they got was, at best, stalemate ― at worst, mounting division. And a day of talking that dragged on for 14 hours with little to show for it.

The longer budget negotiations last, the “more difficulties we will have,” Finnish Prime Minister Petteri Orpo told POLITICO. “So we have to work to find a solution this year. I understand very well that it is difficult. A huge challenge.”

The stakes could barely be higher. The EU is desperate to ease the cost of living crisis and get a deal on the budget before national elections next year make finding an agreement much tougher. Disunity between the bloc’s 27 members looks even starker when Donald Trump makes moves to take Russia’s side in the Ukraine war, the economy is struggling to match the might of China and anti-EU nationalists get closer to power in Europe’s biggest capitals.

All 16 diplomats and officials who POLITICO spoke to for this article were granted anonymity to allow them to speak on a sensitive issue. They were all either in the summit room on Thursday or were immediately briefed by leaders who were. While most were critical of Costa, others spoke more positively.

Costa’s spokesperson declined to comment.

Bogged down

Costa, a former Portuguese prime minister, is appointed by leaders to chair their summits and corral them into agreement. As Brussels Playbook reported on Thursday, EU officials judge he’s entering a defining period of his presidency, racing against time to overcome huge divisions on the budget. He is widely expected to push for reappointment for a second two-and-a-half-year term next year, officials said.

Thursday’s summit was dominated by discussions unraveling on the second phase of the bloc’s carbon pricing regime, known as ETS2.

The showdown over the Emissions Trading System — both the current one, and the second iteration which is already legislated and will put a carbon price on heating and transport from 2028 — became so bogged down it forced Costa to cancel the summit’s planned press conference and delay further talks until after dinner, because they had become a “mess,” three EU diplomats told POLITICO.

With German Chancellor Friedrich Merz incensed by what Berlin saw as his Italian counterpart Giorgia Meloni’s intransigence, fiery negotiations pitted a coalition made up of Germany, Spain, France, Portugal, the Nordics and the Netherlands against a stubborn bloc of Italy with Hungary, Czechia, Slovakia and Poland (known as the Visegrád Four). Rome and the V4 group wanted the EU to postpone ETS2 because of the burden it would place on energy bills, according to five diplomats.

Leaders were fuming at Costa for allowing talks to go off the rails, two EU diplomats from different member countries said. While the pre-summit conclusions didn’t point to any rethink of ETS2, the countries tried to unpick the legislation in the summit room, leaving Costa flustered, one of them said.

Costa “wants to have conclusions ready from [pre-summit meetings of ambassadors] and not to open them during EUCO,” the diplomat said. “He is not a fan of drafting on the spot.”

Another said there was “huge frustration,” calling the tug-of-war over the wording of the energy policy “insane chaos.”

“They just went on with Italian drafts and disregarded texts that were handed in before by others, seemingly not understanding the political nuances of the whole ETS discussion,” they added.

Another accused Costa of “losing control of the room,” saying he had failed to keep track of proposed amendments and present them to EU leaders in time for the discussions. As a result, leaders were left debating without them, contributing to negotiations going on past midnight.

One diplomat and one EU official separately compared Costa with his immediate predecessors, Charles Michel ― who governments frequently criticized for a lack of dealmaking know-how ― and Donald Tusk, who enjoyed broad support throughout his term in office.

Costa performed “worse than Charles Michel” on Thursday, the diplomat said. The official said “there is frustration that things are not being dealt with a bit more Tusk-style.”

Honest broker

The annoyance went beyond the energy debate. While governments weren’t expecting a breakthrough on the EU budget on Thursday, they have started raising questions about Costa’s handling of that topic too.

Costa is determined to secure an agreement by the end of the year. In his job, the Council president must act as a honest broker and facilitate a deal among 27 governments.

Northern EU countries are worried he’s favoring southern countries, according to a further four EU diplomats.

One EU diplomat accused Costa of being two-faced and not acting as an honest broker in the budget negotiations.

Another diplomat, from a country that wants the budget to be smaller, said: “Costa personally and politically belongs to the other camp.”

“There is some skepticism on how he will take the process further from here,” they said. The so-called frugal countries are calling on Costa to propose further cuts ahead of a special EU summit on the budget that was confirmed Thursday for Nov. 26.

‘Superb deal maker’

Many governments still believe Costa may succeed over the long term. Even those who acknowledge that his honeymoon is over ― a period when he was roundly praised for being a safe pair of hands and avoiding diplomatic faux-pas ― retain faith in him.

Belgian Prime Minister Bart De Wever defended Costa as “capable” and “shrewd” after the first day of the summit — praising the Council president for largely avoiding drafting on the day, unlike Michel.

Costa “avoids negotiation about the wording on the table which happened all the time under his predecessor and which annoyed the hell out of everybody because then you are here until three o’clock to discuss about syllables, commas and words that the next morning you cannot see the difference anymore,” De Wever said. “You don’t even know anymore what you are negotiating about.”

Other diplomats said the disarray wasn’t Costa’s fault, and blamed the leaders who tried to unpick the energy legislation, notably Meloni. “He did not want to reopen the conclusions, it was the V4 and Italy who did so,” one said. “I don’t see what he could have done differently.”

Another EU official defended the sheer difficulty of the task faced by the Council president. “Discussing drafting at leaders’ level is not the most straightforward thing in general.” On energy, the official said leaders wanted to have “proper consideration” of the different proposals by countries, which had “opposing interests.”

One of the diplomats more critical of his political leanings on the budget said Costa was “impeccable” in his behavior. “He’s a superb deal maker.”

The next few weeks will show how true that turns out to be.

Hanne Cokelaere, Camille Gijs, Sebastian Starcevic, Gerardo Fortuna and Hans von der Burchard contributed to this article.

BRUSSELS — It was meant to be a debate on how to curb Europe’s soaring energy prices.

But the first session of talks at an EU leaders’ summit in Brussels Thursday quickly descended into a three-hour fight over whether the EU should put a carbon price on driving cars and heating buildings.

The delay got so bad, the roast veal and fig tartlet lunch awaiting European leaders was driven well into the afternoon.

Countries including Italy, Poland, Czechia and Hungary called for ETS2 — an already-legislated law that will put a carbon price on heating and transport from 2028 — to be delayed for two more years. Estonia suggested it could be scrapped altogether.

The push was rejected by a majority of the bloc, with several EU diplomats telling POLITICO it was, as one put it, an “unacceptable” offer. Another said the ETS2 launch date would never be changed. But the debate reflects a growing sense from right-leaning governments that the EU’s ambitious green agenda runs against their push to bring down energy costs. 

While the main topic of today’s discussion was ETS2, its predecessor, the Emissions Trading System — which puts a price on carbon emissions from factories and power plants — was arguably the real target.

Put together, these two emissions trading schemes will be the EU’s most powerful policy tool for bringing down planet-warming emissions.

A proposed reform of the original ETS is currently being debated in the European Parliament and in the Council of the EU. Italy and Poland have been leading a gang of 10 member-countries which have been railing against the ETS since American and Israeli bombs started falling on Iran in March. 

What they want is for the European Commission’s July review of the ETS to be further weakened, even though the proposal already softens carbon restrictions over the next decade to give industry more time to invest in cleaner production methods.

But by framing the ETS as a scourge on household bills, both Warsaw and Rome have found ready audiences at home and abroad. On Monday, hours before a meeting of EU environment ministers convened in Luxembourg, Poland led a meeting of member countries with concerns on the ETS. Their gang, which originally counted 10 countries in March, had now grown to 16.

While Italy and Poland did manage to get Czechia, Slovakia, Hungary and Greece to back their ask for a “reassessment of the ETS2” and to “further postpone its entry into force until at least 2030,” inside the room of European leaders the position mostly fell flat.

Five EU diplomats granted anonymity to discuss the ongoing negotiations said Nordic countries and the Netherlands were firmly against changes to ETS2 — a position backed by France and Germany.

But Paris and Berlin’s long-term reliability as ETS defenders is in doubt. French President Emmanuel Macron and German Chancellor Friedrich Merz both face threats from the far-right, where the ETS has become a dirty word.

Germany’s far-right Alternative für Deutschland, which is no fan of the ETS, is politically ascendant, having won the largest share of votes in two regional elections in September. In France, with elections only months away in 2027, Marine Le Pen’s far-right National Rally is leading in the polls. 

How Le Pen would deal with the ETS isn’t certain, but Jordan Bardella, the French far-right lawmaker and rising star of National Rally, offered a clue  in recent comments.

“ETS: three letters, an acronym that reeks of detached bureaucracy, with one question that keeps coming up: who’s going to pay?” he said to European Parliament in May.

BRUSSELS ― Political pressure is leaving Emmanuel Macron and Friedrich Merz poorly placed to break the deadlock over the EU’s next seven-year budget.

As EU leaders gather for a two-day summit in Brussels from Thursday, the heads of the bloc’s two largest countries hold the keys to breaking the impasse between capitals that has persisted for months, as a Germany-led group advocating a smaller budget clashes with those like France which are resisting reductions.

“Delays and persisting divisions in the Council [representing EU governments] are worrying,” said Siegfried Mureșan, co-leading the European Parliament’s work on the MFF, the multiannual financial framework. “The EU budget can only be built through compromise … The faster we adopt the budget, the faster we can implement it and become more competitive, safer, help farmers and researchers and protect our borders and cyberspace.”

Sealing agreement on the EU’s long-term central budget, worth approximately €2 trillion, is the biggest challenge over the next few months facing leaders, all of whom must sign up to the final numbers. While it isn’t just up to Macron and Merz, getting the chiefs of the bloc’s two most powerful countries to overcome their differences would be a massive step in making all the pieces of the jigsaw slot into place.

But with Macron soon to leave office and Merz under severe pressure domestically, officials and diplomats in Brussels, Paris, and Berlin are playing down hopes of a Franco-German breakthrough this week.

“If the French and German leaders come hand in hand, I think that could change the game,” an EU diplomat, granted anonymity to speak frankly, said. “You need [Italian Prime Minister Giorgia] Meloni and [Polish Prime Minister Donald] Tusk, but it starts with Merz and Macron.”

While Merz and Macron may talk bilaterally during the summit, according to an Elysée official, there were no firm plans for a more formal sit-down, two EU diplomats said, adding they were expecting them to use the two-day meeting to hash out positions.

Domestic political weakness makes both leaders less likely to yield ground, three EU diplomats said.

Backfiring

For the French president, who leaves office next year, the fear is that making big concessions — like accepting cuts demanded by Berlin — could be weaponized by presidential candidates vying to replace him.

“Macron should not appear too conciliatory” in budget talks, said an ally of the French president. “It would backfire in the presidential campaign.”

Indeed, Macron may be wary of striking a deal that could lead to attacks from far-right leader Marine Le Pen or far-left rival Jean-Luc Mélenchon, both of whom argue that France receives too little value for its contributions to the EU pot.

During a press conference in Brussels on Wednesday evening, Le Pen accused negotiators of speeding up talks as “an attempt to stifle future democratic choices before they even take place” — effectively warning Macron against locking in an agreement before France’s April presidential election and votes in other major EU countries, such as Spain, which goes to the polls next month, and Italy, which is due to hold a poll next year.

“All this is not serious,” Le Pen told reporters on the 26th floor of The Hotel in Brussels.

It’s complicated

Merz faces similar political pressures.

Following humiliating state election defeats to the far-right Alternative for Germany party, the Chancellor is wary of concessions that could be framed as sending more taxpayer money to Brussels. Berlin prefers no deal at all to one that increases the overall budget, Merz said.

But Paris and Berlin’s positions may not be as far apart as public statements suggest.

“It’s complicated because France and Germany both need to step outside of their comfort zone,” said the Macron ally. “But it will end with a deal between France and Germany,”

France’s Europe minister Benjamin Haddad told reporters on Tuesday that discussions should focus on raising money via taxes, or “own resources” as they’re known in the EU —such as online gambling levies—rather than “massive cuts.”

However, Paris also wants to “stabilize national contributions” ― in other words, keep its own payments level.

Berlin was “open to examine new own resources, but we are more skeptical than the French that it will generate enough money,” a German official said.

France is betting that when push comes to shove, Merz will give in to pressure from other countries — and German captains of industry — to abandon his demands for far-reaching cuts.

“I see that there is also a real debate in Germany as well on the fact of having a position that would only be focused on cuts to the detriment of future policies,” an Elysée official said Wednesday. This week, Germany’s industrial lobby BDI and top industry groups urged their government to defend a more ambitious EU budget.

Macron and Merz showed unity earlier this month by jointly urging the European Commission to toughen its stance on China. But they still struggle to agree on another major deal—first reported by POLITICO in July—where Berlin accepts stronger “Made in Europe” rules in exchange for France backing relaxed car emission targets and the 2035 combustion engine ban.

EU Industry chief Stéphane Séjourné told POLITICO on Tuesday he supported the deal to finalize both files. Macron recently called the agreement “imminent,” suggesting progress depended on German coalition talks. But their failure to present an agreement at this week’s Paris car show confirms Paris and Berlin still disagree on terms, with the Elysée confirming negotiations remain ongoing.

Governments should not go back and forth on energy policy and decarbonization targets if they want to attract investors, said Catherine MacGregor, the CEO of French energy giant Engie.

“Without trust, we cannot invest,” MacGregor said at POLITICO’s competitiveness summit in Paris on Tuesday.

In the French government’s 2027 budget proposal, French Prime Minister Sébastien Lecornu proposed backtracking on a number of renewable energy contracts, arguing that subsidies for green energy projects, particularly solar panels, were a major financial burden for the state.

MacGregor said such a move could imperil future investments in France.

“A contract is a contract,” she insisted, adding that “trust is very important” for investors to be able to spend money on energy projects in the long term.

France’s deteriorating public finances have become a central political issue ahead of the country’s presidential election next year. President Emmanuel Macron’s embattled minority government has been looking for ways to cut costs in a bid to bring down a stubbornly high budget deficit projected to come in at 5.4% of gross domestic product.

At the European Union level, Ursula von der Leyen’s second term at the helm of the European Commission has been marked by political pushback against the bloc’s core green policies, including Brussels’ landmark ban on combustion engines by 2035 and its emissions trading scheme.

But the bloc’s commitment to decarbonization gives investors the framework they need to plan ahead, MacGregor argued.

“Europe has one advantage: It moves slowly and that offers a certain level of stability which is very interesting for investors,” she said.

MacGregor defended the competitiveness of renewable energy projects as a means to produce energy locally and quickly, especially with gas prices so high.

“Renewable projects, when we do them well, in an organized manner and at scale … we are able to be competitive,” she added.

BRUSSELS — Three of the European Parliament’s biggest political groups say they will fight an EU proposal to relax carbon pricing rules, opening a rift that could push conservative lawmakers to side with the far right to weaken the bloc’s climate ambition.

The center-left Socialists and Democrats, the centrist Renew Europe and the Greens all said in recent days that they would try to preserve an ambitious path to net zero under the Emissions Trading System, forcing heavy industry to cut planet-warming emissions faster than Brussels proposes.

That puts them at odds with the center-right European People’s Party, Parliament’s biggest group, which broadly supports the European Commission’s proposal.

For years, those four groups have worked together in Parliament to pass legislation that strikes a political middle ground, shunning collaboration with the far right. The sometimes uneasy alliance has ensured consistent, bipartisan support for the ETS, Europe’s most powerful tool for reducing greenhouse gas emissions.

But now, a reform of the landmark cap-and-trade scheme, unveiled by the EU executive in July, looks set to become a bellwether in an era when, increasingly, the center no longer holds.

The EPP is steering Parliament’s work on the proposed ETS revision through veteran German lawmaker Peter Liese, who wants to find a deal that satisfies everyone.

“I don’t want the Venezuelan majority. It’s against my convictions, but it is also not possible because nobody would see [Marine] Le Pen, the Austrian far-right FPÖ or the German extreme-far-right AfD voting for any ETS proposal,” he told POLITICO in September, using the informal term for a controversial alliance of center-right and far-right groups.

Instead, Liese, who maintains close ties with Dutch S&D lawmaker Mohammed Chahim, said he wanted “the broadest possible coalition,” including the right-wing European Conservatives and Reformists as well as “the Greens, The Left, if they want.”

But new amendments filed last week by the S&D, the second-largest group in Parliament, as well as the Greens and Renew, point to major schisms over key aspects of the ETS reform. The biggest divide concerns the so-called linear reduction factor, the mechanism that determines how quickly the supply of pollution permits shrinks each year. 

Under the current trajectory, the total cap on carbon emissions for all sectors covered by the ETS falls slightly each year, and would reach zero around 2039 or 2040. At that point, ETS sectors — which include power generators, steelmakers and chemical manufacturers — would no longer be able to emit any carbon dioxide at all. 

Liese’s proposal would push that date into the 2040s, in line with the Commission’s original pitch in the summer. But the three other centrist or left-leaning groups oppose the plan and have tabled nearly identical amendments that would keep the rates high until the end of next decade and bring about quicker industrial decarbonization across Europe. 

Though the percentages between the warring groups appear tiny, they translate into millions of additional tons of CO₂ emissions and expose a growing political gulf. S&D, the Greens and Renew are fighting to preserve Europe’s climate ambitions, while the EPP is increasingly sympathetic to the concerns of the chemicals and metals industries, both of which have been vocally critical of the ETS. 

But just as the chances for a centrist compromise dim, Liese has another possible route.

Memories of fascism in the early twentieth century once discouraged mainstream political groups from working with the far right. That firewall appeared to erode when talks with centrist allies collapsed in 2025 over the first omnibus package governing certain environmental reporting rules. The EPP turned to the right-wing ECR and the far-right Patriots for Europe and Europe of Sovereign Nations to secure a deal, paving the way for similar alliances in the future.

On the ETS, there is a growing risk that it could happen all over again.

Czech lawmaker Alexandr Vondra of the ECR recently floated the possibility of working with Liese to secure a deal backed by his right-wing group during a parliamentary debate on the ETS.

“I would address here specifically EPP because it holds the key to the success of the reform of the ETS system,” he said, before laying out a list of industry-friendly demands that included a much looser trajectory to zero emissions. “If so, count me and my group in.”

Amendments tabled by Vondra this week and seen by POLITICO reflected a similar willingness to work with the EPP and limited regard for emissions reductions. If Liese does decide to shift his compromise to the right and cashes in on ECR votes, it could also quell problems within his own party.

The Polish, Spanish and Italian branches of the EPP are all unhappy with what they see as Liese’s overly climate-friendly proposal, according to three parliamentary insiders. Recent votes in Parliament on the Carbon Border Adjustment Mechanism, the bloc’s carbon levy on imports that works in tandem with the ETS, exposed fractures within the group, with portions of the EPP supporting right-wing groups or abstaining on a key provision of the legislation.

But how willing far-right groups will be to play ball with the EPP remains to be seen. 

The Europe of Sovereign Nations group — whose members include Germany’s far-right Alternative für Deutschland — is hostile to the ETS and wants it totally abolished. But the Patriots — whose members include France’s National Rally — might provide Liese with an opening: the group generally calls for the policy to be slowed to a halt, especially the upcoming ETS2, as it does all Green Deal legislation. French far-right lawmaker and rising political star Jordan Bardella said as much in a speech to Parliament in May.

“ETS: three letters, an acronym that reeks of detached bureaucracy, with one question that keeps coming up: who’s going to pay?” he said.