In a joint statement, the two leaders gave their backing to EU plans to cut emissions of CO2 from new vehicles from current levels of around 160g/km to an average of 120g/km by 2012.
While remaining vague over the details, Merkel and Sarkozy said they had agreed that targets be based on vehicles' weight, as proposed by the Commission. This is key to the auto industry as it will enable heavier, more polluting vehicles, such as the SUVs and luxury models produced by German carmakers, to emit more, so long as manufacturers balance this production with smaller, less-polluting models.
Merkel and Sarkozy went a step further, backing a "substantial" phasing-in period for proposed limits in order to take into consideration "the technological capacities of the car manufacturing industry".
They also called for more flexibility on penalties for offenders. These "should be adapted for small deviations of carmakers from their target," they said.
They added that carmakers should be given breathing space if they are trying to introduce cleaner technology. "The directive should allow the carmakers to be given a credit, up to a certain limit (from six to eight grammes) for the average of their fleet, related to the use of these green technologies," they said.
The move is a major concession from France, which tends to produce much smaller, less polluting cars, many of which are already close to reaching the 2012 goal. Sarkozy stated his understanding of Germany's stance on the issue: "I understand perfectly the interests of our German friends and the nearly identity-defining aspect of high-quality auto construction in Germany," he said.
Merkel hailed the deal as an "important breakthrough" which showed that Germany and France can work together to resolve major differences and will pave the way towards a deal at EU level.
But green groups slammed the agreement. "The car industry says jump and France and Germany say 'how high?'" said Greenpeace campaigner Franziska Achterberg. She said the deal was a route to "climate disaster", notably with the proposed flexibility mechanisms for the introduction of green technologies. "With all the small print they have introduced the target would no longer be 120g CO2/km by 2012, but a whopping 138g by some unspecified date."
During the meeting, Sarkozy also attempted to win over his German counterpart on a proposal to cap soaring oil prices by lowering EU fuel taxes ahead of a key European Summit on 19-20 June. But Merkel merely responded by saying: "I think conditions in every country are very specific."
The French President also called for Berlin's cooperation on promoting nuclear energy as "a solution of the future in the face of exploding oil and gas prices," saying the two countries should work together on building next-generation nuclear plants.
But Merkel highlighted her agreement with her coalition partners to phase out nuclear power by 2021, although she noted that she personally believes that it is an unwise choice.