I've run 205/55-16s on a number of w124s.
The 205/65-16 size will also work.

For at least the late W124s, 94-95 with M104, the CC looks at both the rear axle and left front wheel speeds, and if the front and rear tire sizes are not the same, CC will not engage.

Jim

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14 E250 BlueTEC black. 45k miles
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85 300TD 4 spd man, euro bumpers and lights, 15" Pentas dark blue 274k miles