The German leader and the country's ailing auto sector had been pushing for a 2035 ban on new diesel and petrol cars to be eased, arguing demand for electric vehicles in Europe remains weak and they need more time to catch up with Chinese EV makers.

The EU heeded the calls, and under its proposals carmakers will have to cut exhaust emissions from new vehicles by 90 percent from 2021 levels -- down from an envisaged 100 percent -- with the remainder "compensated" in various ways.

"More openness to technology and greater flexibility are the right steps," said Merz, who has made vocal demands for the ban to be eased as the country's flagship auto sector faces mounting problems.

"It's good that...the (European) Commission is now opening up regulation in the automotive sector," he said in a statement, adding that his government would now "examine the Commission's extensive proposals in detail".

Volkswagen -- the biggest automaker in Europe -- welcomed the EU's "pragmatic" proposals, calling them "economically sound".

"Opening up the market to vehicles with combustion engines while compensating for emissions is pragmatic and in line with market conditions," said the carmaker, which has been cutting thousands of jobs amid the choppy transition to EVs, sagging demand and fierce competition in key market China.

Premium automaker BMW said it was an "important step" that the bloc was "recognising the future viability of the combustion engine".

However top Germany auto industry group the VDA was scathing in its criticism, slamming what it said were ill-conceived measures.

While the EU had recognised that remaining open to different technologies was important, its proposal was "fraught with so many obstacles it threatens to remain ineffective in practice," VDA President Hildegard Mueller told a press conference.

"In times of increasing international competition, in times when European economic power is crucial, this overall package from Brussels is disastrous," she said.

She criticised Brussels for seeking to impose "new requirements" on the struggling sector in areas such as green steel and renewable fuels.

Environmental groups were also dismayed with the decision to water down a policy that had been hailed as a major win in the climate fight when adopted in 2023.

NGO Environmental Action Germany said the proposals, which still need approval from the EU parliament and member states, were "a capitulation to German combustion-engine companies that are ignorant of climate issues".

jsk-sr/rl

Volkswagen

BAYERISCHE MOTOREN WERKE AG