The European Commission yesterday announced plans to provide the auto industry with €5bn (£4bn) to help speed the development of greener vehicles as part of a wide-reaching €200bn economic stimulus package.

However, talks to finalise proposed rules governing vehicle emissions appear to have stalled as concerns mount that the European Parliament will fail to reach an agreement with member states on the bloc's package of climate change legislation before a deadline of the end of the year.

Under the stimulus package, the European Investment Bank is to offer €4bn in low interest loans as part of a move to promote "the safety and environmental performance of cars". The EU, member states and the auto industry will provide a further €1bn to support research into green vehicles, including electric cars, and improved traffic management.

Speaking to reporters at the unveiling of the new package, EU commission chief Jose Manuel Barroso said the EU would to help the auto makers "transform into a more modern industry, more friendly to the environment and in fact adapting it to the new trends in overall demand".

In addition to financial support, the commission is also proposing reductions in vehicle registration fees and road taxes for low carbon vehicles.

The announcement comes as fears are mounting the EU's wide-reaching climate change package could be on the rocks following a series of heated negotiations that appear to have failed to break the deadlock between member states and the European Parliament.

Earlier this week, the European Council of member states put forward a watered down version of parliament proposals for vehicle emission standards that would see an 18 per cent cut in average emissions to 130g per km phased in between 2012 and 2015 and fines for companies breaching those standards lowered to a maximum of €15 per gram.

However, the parliament refused to rubber stamp the proposals, with members accusing member states of pandering to the car industry and exploiting fears that the whole package of measures could be at risk if a deal is not reached by the end of the year to try and force through weakened legislation.

The French presidency of the EU finishes at the end of the year and there are concerns that the Czech presidency, which takes over in January, is unlikely to make climate change a priority.

The European Council is now scheduled to meet on December 11 and 12 to discuss the issue again and try and finalise a package that the Parliament can support when it votes on the legislation on December 17.

However, all parties still appear a long way from reaching an agreement.

"Everyone expected a compromise earlier this week, but it didn't happen," a spokeswoman for the parliament told BusinessGreen.com. "There are still differences between the member states over the proposals and disagreements with the parliament on when the fines should come in, how big they should be and whether there should be a long term target to cut emissions to 95g/km by 2020."

The parliament appears increasingly willing to dig in its heels as it attempts to stop the legislation being watered down. However, several of the member states appear equally loath to compromise with the environment minister Stefania Prestigiacomo telling Reuters that Italy will veto the whole package unless it gets a number of concessions.