Merkel says no breakthrough in Brexit talks but remains ‘optimistic’

German Chancellor Angela Merkel departs an EU summit at the European Council building in Brussels, Belgium

German Chancellor Angela Merkel said she had no breakthrough to announce in EU talks with Britain but remained optimistic on Friday that sealing a deal on a new trade relationship after Brexit was still possible before the end of the year.

Both British Prime Minister Boris Johnson and the EU have set a mid-October goal for reaching a trade agreement but the EU’s chief Brexit negotiator Michel Barnier suggested talks would continue up until the end of the month.

There are still major hurdles to ensuring smooth ties after Dec. 31, when a standstill post-Brexit transition ends, and a chaotic split without a new agreement in place would jeopardize an estimated trillion euros worth of annual trade.

Barnier noted fresh progress on aviation safety and safeguards of fundamental rights but said there was none on personal data protection or carbon pricing.

“Serious divergences” persisted, he said, citing a need for level playing field guarantees of fair competition, including on state aid, “robust” mechanisms to solve disputes, including “effective remedies”, and an agreement on fisheries.

“I can’t announce a breakthrough,” Merkel told an earlier news conference after two-day talks among the 27 national EU leaders in Brussels. “As long as negotiations on Brexit are ongoing, I’m optimistic.”

Ireland’s Prime Minister Micheal Martin told the summit Britain must respect arrangements for the sensitive Irish border it had agreed under its earlier divorce deal with the bloc after a fraught week.

Johnson will speak to the head of the EU’s executive, Ursula von der Leyen, on Saturday to agree next steps after the bloc launched a legal case against Britain over moving to undercut their Brexit divorce treaty.

Speaking after the summit on Friday, von der Leyen said it was time to “intensify” Brexit talks with time available by the end of the year to put a new deal in place running out.

“Where there’s a will, there’s a way,” she said.

“We have made progress on many, many difficult fields but the main ones all remain very much open,” she added, naming guarantees on a level playing field of fair competition as a key sticking point. “There is still a lot of work to do.”

Referring to another major sticking point in the trade talks, Merkel also said the UK’s new deal on fisheries with Norway announced this week “shows… agreements can be found”.

The deal includes access to each other’s waters, as well as annual fishing quotas negotiations. The latter has long been favoured by Britain but so far rejected by the EU, where fisheries is politically sensitive for France.

But an EU diplomatic source said Merkel’s comment suggests that positions may be inching closer after the sides discussed a compromise that would also include a “phasing-out” or “transition” mechanism for fish quotas.

Under this idea, Britain would increase its quotas in time, rather than overnight from Jan. 1, 2021, when it says it becomes an “independent coastal nation” in control of its own waters.

“Some kind of transitional arrangement is one of the things that are under discussion,” said Barrie Deas, head of National Federation of Fishermens’ Organisations, a UK lobby group.

“The key point for us is that… we must have absolute certainty at the end of this we have full access to the full quota shares.”

With businesses increasingly concerned over what future trading terms will be, U.S. Citi bank expected the two sides to agree “a rudimentary Brexit deal” and JPMorgan agreed a deal was more likely than not, though only a narrow one.

The EU says an agreement must be at hand by November to enable ratification before the end of the year. The bloc is adamant, however, that it would not implement any new UK deal if London undercuts the divorce agreement.

Martin told his EU peers that adhering to Britain’s EU divorce bill provisions for Ireland was crucial: “That is important in terms of trade, protection of jobs,” he said.

Ireland and the EU fear that the UK’s new Internal Market Bill, which Britain admits breaks the international law by undercutting parts of its Brexit divorce treaty, could threaten the fragile peace on the island of Ireland.

U.S. special envoy for Northern Ireland said in London the message he would take back to Washington was that all sides were committed avoiding that.

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