But the EU failed to find common ground on long-sought plans to tax income from billions of savings held abroad due to stiff resistance from Italy, he added.

"I am pleased to inform you that with regard to the taxation of energy Austria has lifted its reservation and we thus have reached a political agreement," Christodoulakis, who chaired the meeting of finance ministers, told reporters.

The common energy tax rules are aimed at deterring overuse of fossil fuels by introducing minimum tax rates on items such as gas and coal and raising tax rates on other products.

Austria had held up a deal on Wednesday as it objected to a tax exemption for energy-intensive industries.

Internal Market Commissioner Frits Bolkesteing hailed the agreement as a major step in EU's quest for competitiveness.

But the proposed minimum energy tax rates are so low, and there are so many exceptions that they would result in few tax rises for EU citizens or firms.

Environmentalists see them, however, as an important first step toward higher energy taxation across the EU.

SAVINGS ISSUE OPEN

The leaders, grappling with divisions over a war in Iraq, would try and patch up the savings tax plan last week.

EU diplomats said Italy was refusing to back the savings rules unless it obtained a partial write-off of 648 million euros of fines that the EU has slapped on Italian milk producers for overproduction.

Rome was also claiming that the plan, which are linked to a tax cooperation agreement with Switzerland and five other non-EU financial centres, would not be beneficial to Italy.

EU leaders have pledged to reach a deal on the savings plan, which require unanimity of votes. But demands raised by one EU member state have meant that the bloc has failed to meet its self-imposed deadline of end-2002 for an agreement.