Germany is concerned that planned EU rules which would cap emissions at 120 grammes per km on average from 2012, and introduce fines for non-compliance, will put its luxury automobile industry at a disadvantage.

It has argued that all categories of car should have to cut emissions -- including smaller, less polluting vehicles produced by France and Italy that already meet the EU goal.

Officials from Berlin and Paris had thrashed out agreement or were making progress on almost all the sticking points, according to a German government source, who asked not to be named.

France wanted to have a deal in place by the time President Nicolas Sarkozy meets German Chancellor Angela Merkel in Bavaria on June 9, the source said.