The commission president Jose Manuel Barroso together with the environment commissioner believes legislation is needed to make car makers move on cutting greenhouse gas emissions, while industry commissioner Guenther Verheugen says it would result in job losses across the 27-member bloc.

The auto industry is likely to miss a voluntary target to cut average emissions for new cars to 140 grammes of CO2 per kilometre by 2008. The current average is around 163 grammes.

In a move to fight climate change, the EU executive is considering proposing legally binding targets where all cars made or imported into the EU should on average not emit more than 120 grammes of CO2 per kilometre by 2012.

It "cannot possibly be that we create a general obligation under which all cars, regardless of the segment in which they are produced, have to follow the same standards," Ms Merkel said at an industry conference on Tuesday (30 January), according to press reports.

"The German government will work with all its strength and energy for there to be a reduction by sector," she said, adding "we will prevent there being a general reduction."

Germany is the current holder of the EU's agenda setting presidency and at the same time Europe's biggest car producing country specialising in powerful cars with higher emissions, such as those made by BMW, Audi, Volkswagen and Porsche.