BRUSSELS Differences narrowed in the European Union over how to tackle the economic slowdown and global warming but a final deal on both issues proved elusive before a summit starting on Thursday.
Sources close to talks said Germany and Poland had reached an agreement on how to alleviate the impact of proposed new regulations on Poland's coal-fired power stations.
However Italian Prime Minister Silvio Berlusconi threatened to veto any climate deal that hurt Italy's interests too much.
The glittering prize at the two-day summit in Brussels would be an accord allows the 27-nation bloc to offer Barack Obama a partnership on both issues when he becomes president next year.
But agreements may be possible only on a minimal version of a proposed 200-billion euro ($259-billion) stimulus plan and on watered-down pledges on global warming that satisfy industry.
Despite resistance from around the EU to some parts of a scheme to cut European carbon emissions by 20 percent by 2020, EU Environment Commissioner Stavros Dimas said he was confident.
"We are going to have an agreement," he told reporters at a conference led by the United Nations in the Polish city of Poznan intended to set the stage for global talks next year on a successor treaty to the Kyoto climate agreement from 2012.
"I can assure you that the reductions targets, 20 percent by 2020 and the other targets that we have set in renewables, will be intact," he said of a goal for the EU to secure a fifth of its energy from sources such as wind and solar power.
Negotiators in Brussels have been working for weeks on individual parts of the climate package. They have agreed on rules relating to car emissions and this week reached agreement on the renewables target.
But Poland and other eastern European nations say they need subsidies to help their heavily coal-dependent power stations deal with the emissions cuts, despite opposition by Germany and others including Britain.
German Chancellor Angela Merkel and Polish Prime Minister Donald Tusk hinted earlier this week they had taken a "big step forward" to settling their differences.
A source close to the talks said Poland would accept a deal under which it would have until 2019 to oblige all its power stations to pay for permits to pollute under the bloc's Emission Trading Scheme (ETS) -- six years later than now proposed.
In return, Germany would ask for special treatment for more modern, coal-based plants, the source said.
Italy's Berlusconi, without referring to any specific part of the climate deal, warned his country would use its right of veto if needed. "If I see that Italian interests will be hurt in an excessive way, I will use our veto rights," Berlusconi told reporters at a book presentation in Rome.
Germany and Italy fear their heavy industry could become less competitive on international markets if the EU accepts the targets with no concessions.
Merkel has been nicknamed "Madame Non" by some European media for resisting calls by French President Nicolas Sarkozy for Berlin to inject more money into EU-wide stimulus efforts.
EU diplomats expect her to oppose calls for the Union to follow Britain and others in cutting value-added taxes (VAT) and to demand that member states adhere to EU budget deficit limits -- despite hints by the executive European Commission that it would look leniently on small and temporary deficit overhangs.
EU officials are, however, upbeat about chances of a deal with Ireland on holding a new referendum on ratifying the Lisbon Treaty of institutional EU reforms its voters rejected in June.