Brussels has upped the ante in its clash with Volkswagen over the German carmaker's refusal to compensate VW car owners in Europe caught up in the "dieselgate" scandal, with officials warning of negative consequences for the whole motor industry.

The European Commission is strongly objecting to how VW has offered US owners of diesel cars that were equipped with software to cheat emissions tests up to $10,000 each in compensation, but nothing to their European counterparts.

EU officials said VW’s refusal to make a gesture to car owners in Europe could do reputational damage to the wider industry, with a knock-on effect on the reception that the sector will get when it tries to lobby the union on other issues. One official even made a comparison with the cold shoulder given to banks when the EU set about regulating the sector in the wake of the 2008 financial crisis.

Meanwhile, a judge at Spain’s national court has accepted a criminal case that accuses Volkswagen of fraud and crimes against the environment over the scandal. Widely seen as the biggest scandal in the company’s 79-year history, the affair centres on revelations that VW installed defeat devices in millions of its diesel cars with the aim of understating harmful emissions in official tests.

In a four-page preliminary ruling about the Spanish case, Judge Ismael Moreno said the carmaker was suspected of three separate offences: fraud against an unknown number of people, subsidy fraud and causing criminal damage to the environment. The Spanish case was brought by an association of car owners affected by the scandal and an anti-corruption group.

The judge’s ruling, released on Friday, removes an important obstacle in the legal process, but it does not mean that Volkswagen will automatically have to stand trial. – Copyright The Financial Times Limited 2016