The agreement risks angering trade partners and further undercutting the competitiveness of European automakers.

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BRUSSELS — A deal between France and Germany on cars has helped break a stalemate in the European Parliament on two major industry measures. But the agreement will do little to address the acute problems facing Europe’s struggling automakers.

Under the agreement reached during the Oct. 15-16 EU leaders’ summit, Berlin would accept stricter “Made in Europe” content requirements for cars in the proposed Industrial Accelerator Act, while Paris agreed to soften the EU’s emissions-reduction targets.

European lawmakers reached a separate compromise last week, also easing proposed emissions targets under the European Commission’s Automotive Package.

The bargains mark an attempt by Europe’s biggest economies to respond to the crisis in the car industry. But critics say they do too little to spur investment in new vehicle technology, potentially leaving European automakers further behind.

Electric vehicle sales are taking off and now account for 23% of the European market. But Chinese automakers are the main beneficiaries, with brands like Leapmotor seeing sales increase nearly 400% year-over-year in the first nine months of the year.

Meanwhile, German automakers are laying off tens of thousands of workers and closing factories.

“By squandering time — time that should have been used to make our own electric vehicles more competitive — we are ultimately strengthening our Chinese rivals,” said Ferdinand Dudenhöffer, a former auto industry executive and leading German commentator who heads the private Center for Automotive Research in Bochum.

The Paris-Berlin agreement proposes lowering the 2035 target from a 100% reduction to 90% from 2021 levels. Unlike the European Commission proposal, the emissions would not have to be offset with investments in alternative fuels or green steel.

The center-right European People’s Party, leading negotiations on the file in the European Parliament, brokered a compromise agreement this week with the Socialists & Democrats and Renew that proposes an 87.5% reduction from 2021 levels. Automakers would be given 5% unconditionally, and 7.5% would have to be offset with green steel.

The two committees giving opinions approved the compromise in an Oct. 22 vote, and the leading ENVI committee will vote on the position on Nov. 4.

The Council, representing the EU’s 27 countries, and the Parliament would, once they adopt their respective positions, sit down to hammer out a compromise.

The Franco-German push made it easier to find an agreement within the Parliament’s industry committee, S&D MEP Giorgio Gori said, noting that it sent “an important political signal.”

German Chancellor Friedrich Merz’s coalition government had struggled to come to a unified position, delaying the Franco-German deal, with Merz ultimately failing to fulfill his campaign promise of overturning the combustion ban.

That hasn’t stopped the EPP, to which Merz’s Christian Democrats belong, from claiming victory for undoing the ban after brokering the deal in Parliament.

Yet neither the Franco-German compromise nor the deal in Parliament has impressed automakers.

German car lobby VDA said that, while the Parliament agreement “contains clear improvements over the European Commission’s original proposal, it does not go far enough to ensure the competitiveness of Europe as a manufacturing hub.”

The lobby was even less enthusiastic about the Franco-German deal, saying more flexibility should be granted to automakers and that the "Made in Europe" definition should be broadened to include other countries.

Other sectors lambasted Berlin for bargaining away export opportunities in exchange for lower emission targets.

Under the deal, Germany relented to France’s desire for only the 27 EU member states, along with the United Kingdom under certain conditions, to qualify under a “Made in Europe” provision for cars under the IAA that would seek to channel public procurement and other funding to homegrown industry.

That strict definition risks angering trade partners and prompting retaliation, which “would further harm our companies in their export markets,” Germany’s engineering and digital lobbies wrote in a letter to Merz. “In doing so, Berlin and Paris would risk weakening the very industrial competitiveness they claim to be strengthening.”

They’re not the only ones raising concerns.

“This is a very, very extreme position that has been taken by France and Germany,” said Ignacio García Bercero, a senior fellow at the Bruegel think tank in Brussels, referring to the strict Made in EU requirement.

France has advocated for the strictest definition of which countries would qualify as Made in Europe — a stance García Bercero described as an ideological viewpoint more than one based on industrial demands.

Paris has meanwhile sold the deal as a major diplomatic victory.

An Elysée official rejected the idea that France, formerly on the fiercest supporters of the 2035 ban, backtracked on its position and capitulated to German requests.

“What’s striking is that if there were no Franco-German agreement, everyone would be complaining,” the official said on the sidelines of the European Council summit on Oct. 16.

Already during the summer, French President Emmanuel Macron and Merz made clear that Franco-German compromises on the bloc’s major economic files, spanning from industrial policy to the bloc’s multi-annual budget, should be found before year-end.

Paris succeeded in flipping Berlin’s stance on the IAA, but the pair will have a harder time in Council with the other member states.

In the latest compromise draft shared by the Irish presidency, the bloc’s capitals advocate for a broader definition that would include the bloc’s trading partners.

And there is no guarantee the emissions targets will hold either. A plenary vote for the automotive package has been delayed until December and will depend on negotiations on the IAA moving forward, according to a note circulated in Parliament that was seen by POLITICO.

“It is a very bad compromise for the European Union. It’s just really pushing their own domestic political agendas,” García Bercero said.

Romanus Otte in Berlin and Francesca Micheletti in Brussels contributed reporting. This article has been updated.

The compromise was reached after the German Social Democrats, the junior coalition partner in Friedrich Merz’s government, dropped their opposition.

The draft pact supports tighter eligibility rules for non-EU countries to participate in public procurement and public support, and softens the 2035 combustion engine ban.

Brussels is looking at ways to protect the two industries, after a deal with China to limit imports of hybrid vehicles.

At the Paris Auto Show, Chinese manufacturers show why the EU’s trade defenses won’t be enough to protect its auto industry.