By Gabriela Baczynska
BRUSSELS (Reuters) - The European Union's Brexit negotiators see a divorce deal with Britain as "very close", diplomatic sources said, a signal that a compromise might be in the making on the most contentious issue of the future Irish border.
The EU signalled on Thursday it was engaging with new proposals emerging in Britain on avoiding extensive Irish border checks after Brexit, a potential deal-breaker in the unprecedented talks to end Britain's four decades in the bloc.
A member of EU Brexit negotiator Michel Barnier's team told a briefing with national diplomats in Brussels late on Thursday that a divorce deal with Britain was "very close", according to two sources at the meeting.
Their comments sent sterling to a 10-week high versus the euro.
The two sides are trying to push the divorce deal as well as an agreement on post-Brexit relations above the line in time for two leaders' summits scheduled for Oct. 17-18 and Nov. 17-18.
Under the plan in the making, the EU would get assurances that the emergency Irish border fix would be indefinite, while Britain would get its way in having all of the United Kingdom - rather than just Northern Ireland - stay in a customs union with the bloc should the border 'backstop' be triggered.
Ireland's Prime Minister Leo Varadkar, speaking in Brussels on Thursday, has stressed no new proposals have been made on paper and that they should come well ahead of the EU summit in less than two weeks to leave enough time for analysis.
Sources in Brussels say the devil is in the detail.
Such a compromise would leave the EU worrying that Britain could use Northern Ireland's special access to the bloc's single market to sell cheaper goods that would not adhere to labour, environment and other standards.
The bloc worries that London would use whatever special trade fix is agreed for Northern Ireland as a building block for the overall future trade relationship to win an unfair competitive edge.
CANADA +++
One senior EU diplomat said the bloc could seek to attach additional conditions to any such agreement but they have not yet been specified.
For Britain, the problem is agreeing to checks on goods and livestock with Northern Ireland, something the province's Democratic Unionist Party - on which British Prime Minister Theresa May relies to govern - strongly opposes.
Britain's Brexit ministry said on Friday London's new proposals on the Irish border would preserve the integrity of the United Kingdom.
While the EU is pushing London on the Irish conundrum, the 27 states remaining in the bloc are also fleshing out their proposal of future ties with Britain. A member of Barnier's team was due to present his outline to 27 EU ambassadors in Brussels later on Friday.
The chairman of EU leaders, Donald Tusk, on Thursday said a "Canada +++" was on offer, meaning an advanced free trade agreement coupled with close security ties and tight cooperation on global affairs, among others.
Another senior EU diplomat said the EU would propose "zero tariffs and zero quotas" in trade with Britain after Brexit, which would go beyond what the bloc has with Canada.
Such a proposal goes down well with May's critics at home who advocate a more uncompromising cut from the EU than she is seeking. For the bloc, however, the Irish emergency break would still be an essential part of any such offer.
Any deal between May and fellow EU leaders must be endorsed by both the EU and British parliaments, another hurdle to clear to avoid the most damaging scenario of Britain leaving the bloc with not much in place to mitigate the economic shock.
(Reporting by Gabriela Baczynska, Additional reporting by Guy Faulconbridge and Sarah Young in London, Jan Strupczewski in Brussels; Editing by Janet Lawrence)
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