(Bloomberg) -- The final round of scheduled talks between the U.K. and European Union over their future relationship is set to end on Friday with the two sides making limited progress, setting up a frantic few weeks of last-ditch negotiations and market volatility.
The EU's chief negotiator, Michel Barnier, will meet on Friday morning with his British counterpart David Frost to discuss whether they are in a position to enter a final intensive stage of talks that would signal a deal is within touching distance. EU officials cautioned against expectations they would enter this so call tunnel immediately and indicated that negotiations could continue in the coming days.
While some headway has been made, many on the European side doubt that it's enough to justify entering this final phase when they start drafting a legal text. All the same, one EU official cautioned that a lack of a breakthrough this week wouldn't mean that talks have collapsed. Privately some optimism remains that a deal is within reach.
With the final outcome of the discussions still uncertain, traders face weeks more Brexit-induced volatility as the two sides race to hammer out an accord. The pound was whipsawed Thursday on conflicting reports on the outcome of the discussions, making sterling the most erratic currency among those of the Group-of-10 nations after Norway's krone.
Failure to enter the tunnel would be a blow to the U.K., which had sought to break the deadlock with a fresh range of compromises at the start of the week. Prime Minister Boris Johnson has set an Oct. 16 deadline to reach a deal, but his EU counterparts are willing to wait a little longer and haven't ruled out continuing into November.
“The EU is willing to close a deal,” Dutch Prime Minister Mark Rutte told reporters in Brussels on Thursday. “It helps if it is done before the end of the year, but I'm not going to commit myself to a date -- the sooner the better,” he said. “We all agree that somewhere in October it would be nice to have at least the general outline and the details of a deal ready.”
Read More: Why Brexit Talks Aren't Over and Still Threaten Chaos
If the two sides fail to reach a trade agreement by the year-end, when Britain leaves the EU's single market and customs union, millions of consumers and business will suffer the cost and disruption of tariffs and quotas and relations between the two sides could be poisoned for a generation.
The U.K. and EU are still stuck on the same issues that have plagued the negotiations since they began seven months ago. The EU wants guarantees on a level playing field for businesses, including on how the British government will allocate state aid, and they are at odds over how to calculate fishing quotas for European boats in British waters.
The EU's rejection of the compromises offered at the start of the week hasn't stopped British officials from expressing more optimism in recent days.
“We certainly are committed to continuing to work constructively to seek to reach an agreement with the EU,” Johnson's spokesman, James Slack, told reporters on Thursday.
Read More: EU Rebuffs Latest U.K. Effort to Unblock Deadlocked Brexit Talks
While EU negotiators don't completely shared that optimism, they have been heartened by the U.K.'s apparent new willingness to bring potential concessions to the table and seek a deal.
Still, complicating the discussions is Johnson's threat to break international law by unilaterally rewriting parts of the Brexit Withdrawal Agreement. On Thursday, the EU began the first stage of legal proceedings against the U.K., accusing the country of a breach of good faith.
While officials are trying to keep that issue separate from Frost and Barnier's discussions, the EU is pressing the U.K. to commit to a clear, legally binding mechanism for resolving any disputes between the two sides, particularly on the issue of state aid, officials said last week.
©2020 Bloomberg L.P.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
