Opposition from Germany and other member states means that European Union citizens will not be protected by an EU directive from discrimination on the grounds of sexual orientation.
The BBC has learned that only disability will be covered by the new directive.
The European Commission has decided not to propose a more wide-ranging measure.
“The Commission would still prefer to have a ‘horizontal’ directive that covers all the discrimination grounds in all the areas that are not covered yet,” Jan Jarab of the Employment Department of the Commission told the BBC’s The Record: Europe.
“Having said that, we need to be realistic, and we have signals from some member states that they would not support such a horizontal directive and this, of course, is a problem because we need unanimity in council to get the proposal through.
“So at present we are envisaging a bit of a compromise which means a directive that will be specific to disability, which of course is a discrimination ground that we can justify, referring to the new international convention on disabilities.”
Asked why the Commission is not challenging member states to come out and say they oppose protections for gay, lesbian and bisexual people, he said that even the disability directive will be “quite challenging.”
“On the other remaining grounds, age, sexual orientation and religion, we will issue recommendations, as opposed to a directive,” he said.
There is at present no EU law protecting LGB people from discrimination in areas such as goods and services which exist for race and gender.
All forms of discrimination at work are already covered by directives.
Evelyne Paradis of ILGA-Europe said:
“We keep on repeating the hierarchy of rights and giving out the message that some grounds of discrimination are more important than others. All the EU is entitled to equality.”
Article 13 of the Amsterdam Treaty, covering race and employment directives, requires EU member states to introduce legislation to outlaw unfair discrimination on the grounds of race, sexual orientation, religion or belief, disability and age in the fields of employment and training.
The directive also applies to areas such as education and goods and services.
A directive to combat discrimination on the remaining grounds of Article 13 was announced in the Commission’s work programme for 2008.
EU directives are legislation that requires member states to, for example, deal with discrimination, but leaves it up to the states to decide on the best course of action to take.
Earlier this month the European Parliament’s all-party social affairs committee voted for a framework directive against all forms of discrimination, despite firm opposition by right-wing MEPs.
In 2004 Mr Barroso made a statement before the Parliament promising to personally ensure that the legal protections would be enlarged to all forms of discrimination.
The European Parliament has called for such a directive at least on seven occasions in the past eight years.