It started decades ago with taxation. The government needed to find some way to tax the different car differently, so the rich guys with bigger, better and badder cars pay more than the average Joe (or average Hans or Luigi) with his Morris, Topolino or Käfer. They decided that the best way to assess the cars is based on their engine displacement – not horsepower, not weight or dimensions. I don’t want to go to great lengths about why the metric was chosen – but that’s how things panned out.
And since taxation (and eventually, insurance), made it very expensive to own a car with a big engine in most countries, the car makers designed most cars with small engines – not for the sake of efficiency, but just to evade high taxes. Of course, there were still people who could buy expensive cars with huge engines. But having, say, a three-liter, six cylinder car in Europe was always a sign of wealth and extravegance.
The simple fact that it was, and often still is, expensive to own a large-displacement car in Europe, is quite well known and illustrated by atrocities like Ferrari 208 with two-liter, eight cylinder engine offering a scant 155 horsepower (or about as much AMC Pacer of the time). But the secondary result was that by making the high displacement cars expensive to own, no one really cared that much for their economy. Large displacement engines were expected to be power monsters, bought by those who were willing to pay extra for performance. So, if you were to offer anything over two liters of displacement, you tuned it to be extra powerful, letting the owner know where his money went. Which, of course, meant that these engines became really thirsty – while average European 3.0 from 1980s or 1990s offered similar power to American 5.0 V8, it also required about as much gas… or even more, in some cases. There were exceptions, like BMWs ETA low-rpm, low-compression 2.5 litre six cylinder, but they never really caught on.