British and European negotiators return to intense negotiations on a draft Brexit deal Wednesday after late-night talks brought them closer but failed to confirm an elusive breakthrough.
Reports that Britain has softened its stance on the customs status of Northern Ireland in order to clinch an accord at this week's European summit had raised hopes that a chaotic "no-deal Brexit" can be avoided and driven the pound higher.
But a marathon overnight negotiating session in the EU's Brussels headquarters brought them to the eve of the meeting with still some distance to go to agree the wording of a treaty to govern the terms of Britain's October 31 departure from the bloc.
"The teams worked into the night and continue to make progress. The teams will meet again this morning," a UK official said, describing the talks as "constructive".
He and EU officials said the teams would get back to work at around 9.00am (0700 GMT).
A senior European diplomat told AFP that the negotiators had begun to transcribe the British offer into a legal text that could eventually go before the 28 EU national leaders on Thursday at their European Council summit which begins on Thursday.
But there remain some important differences, he cautioned, while a European official, speaking on condition of anonymity as closed-door negotiations continue, played down hopes that any text would be finalised Wednesday.
Even if a text is prepared for the leaders this week -- or if, as many observers in Brussels expect, an extraordinary summit is called later -- any deal would have to be approved by a skeptical British parliament, which holds a special session on Saturday.
By agreeing to a form of customs boundary in the Irish Sea, Britain could allow its province of Northern Ireland to remain under EU rules, prevent a return to a hard land border with EU member Ireland and salvage a negotiated withdrawal.
But Prime Minister Boris Johnson may struggle to convince hardline Conservative eurosceptic MPS and his allies from Northern Ireland's loyalist Democratic Unionist Party (DUP) to accept this concession -- less than three weeks before Britain is due to leave the EU.
Nevertheless, EU negotiator Michel Barnier and British Brexit minister Stephen Barclay judged that a deal was close enough to justify officials working into the early hours of Wednesday morning.
Barnier had said a text must be on the table by Wednesday if member state governments are to have a chance to consider it before the summit, because the 28 national leaders have no plans to themselves debate the details of the agreement.
But if, as now seems likely, the Wednesday deadline is missed, officials said talks could instead resume next week and a special summit be called just in time for Johnson to fulfil his pledge to lead Britain out of the bloc on October 31.
European leaders warn they will not let Britain use Northern Ireland as a back door to the single market and Barnier said Tuesday that "it is high time to turn good intentions into legal text."
On Tuesday, German Chancellor Angela Merkel outlined why EU officials are driving a hard bargain and hoping Britain will commit to a "level playing field" in post-Brexit trade and commerce.
"One thing is clear, Britain will develop into another competitor on the doorstep of Europe," Merkel told German industrialists.
"And therefore the EU will be challenged to become more competitive and to assume geopolitical responsibility."
"The last moment is always a bit later than you think," one German government official told AFP, suggesting Brexit would have to be postponed beyond the end of the month if talks are to reach a successful conclusion.
More than three years after Britain's 2016 referendum vote to leave the European bloc, talks remain stuck on how to avoid customs checks on the border between British-ruled Northern Ireland and EU-member Ireland.
The EU has reservations about London's proposed customs arrangements and the role for Northern Ireland's Stormont assembly in giving consent to the plans.
In London, DUP leader Arlene Foster told the BBC that she wanted to support a deal, but would not do so if she felt it divided Northern Ireland from the rest of the UK and added that without her party's support "everybody knows" it would not pass in parliament.
If no deal is reached by Saturday, Johnson will fall foul of a British law demanding he ask the EU to postpone Brexit for a third time rather than risk a potentially disastrous "no deal" departure.
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