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UPDATE 1-Italy stands in the way of EU energy tax plan

(Updates with Italo-German meeting)

By Lisa Jucca

BRUSSELS, Feb 18 (Reuters) - European Union plans to set common minimum tax levels on energy products to fight global warming and pollution were stuck on Tuesday due to resistance by Italy, EU diplomats said.

The energy tax proposal, which needs the backing of all 15 EU states to become law, would raise existing minimum tax levels for oil products and introduce EU-wide minimums for coal, gas and electricity.

EU leaders backed the bill in principle at a summit in Barcelona, Spain last year. But spats over exemptions for truckers, households and energy-intensive industries held up full agreement on the proposal which was tabled in 1997.

Diplomats said Italy, which relies heavily on road transport for its exports, was threatening an accord by insisting on extending tax breaks for truck fuel it introduced in 2000 after protests against rising oil prices, something Germany opposes.

"Italy is blocking a deal because it won't give up its tax breaks," a diplomat told Reuters as finance ministers met in Brussels to discuss taxes, the economy and budgetary stability.

France introduced similar tax breaks, but was ready to phase them out by the end of 2004, according to diplomats.

Germany, where fuel duties are higher than in most EU countries, has repeatedly blocked the bill, as it does not want to grant France and Italy an extension of tax breaks on truck fuel, putting German road hauliers at disadvantage.

Italian Finance Minister Giulio Tremonti and his German counterpart Hans Eichel had face-to-face talks on the issue on Monday night and more meetings were expected later on Tuesday, diplomats said.

Unless the two countries find a way to resolve their differences, the EU will not be able to adopt the new rules.

The European Commission, the EU's executive which has been urging states to adopt the bill, said on Monday it doubted a breakthrough would emerge at the finance ministers meeting.

"The prospects don't look very good...for an agreement tomorrow," said Jonathan Todd, the Commission's spokesman on tax affairs, citing objections by a "large southern member state."

Environmentalists see the energy tax as essential to spur companies and individuals to use energy frugally and reduce pollution caused by fossil fuels as well as nuclear power.

They said an agreement was needed before the EU takes in 10 new members next year, which would make it more difficult to get unanimous support for the package.

-- Additional reporting by Guido Bohsem