The question is whether a loss in value/additional expense of 1-2 thousand € is sufficient here.
As a layman's solution, I see 3 possibilities without depending on the neighbor: Either the house including the parking space has to be set lower, which leads to a slope towards the street, or you leave the house as it is but have a driveway that first has to overcome a height difference of 2m and you essentially park at basement level, or the parking spaces have to be created elsewhere, which presumably means a completely different location of the house and possibly involves replanning. None of this is really attractive and, if at all feasible, is associated with many additional costs.
If it is really the case that the neighbor is already threatening with a lawyer over a wall that even the original poster would have paid for and that it may even be legally clear that the neighbor would potentially have to bring his property boundary up to street level, then I would have it enforced by a lawyer if necessary. The relationship seems to be broken anyway at the moment.
The worst thing is that the relationship with the neighbor is still broken, even though you gave up and you regularly get annoyed when you see the property boundary. And it was only about 1-2K€.