Angela Merkel warned the EU must get ready for UK trade negotiations to fail as Boris Johnson told ministers the UK should have "no fear" over a no deal Brexit if his October 15 deadline is missed on Thursday.
The Prime Minister told his Cabinet he believed a deal could still be done by Thursday's European Council summit in two days' time but that was ruled out by Michel Barnier, the EU's chief negotiator.
Mr Johnson will speak to Ursula von der Leyen, the president of the European Commission, on Wednesday after being briefed on whether a free trade agreement is in sight by David Frost, his chief negotiator.
Mrs Merkel said the EU wanted to secure the trade deal and appeared to urge other member states to compromise in a speech to a Brussels-based EU institution.
"Unfortunately we have to prepare for the event there will be no agreement," the German Chancellor said, "We also have to take into account the reality; an agreement has to be in the interests of both parties, in British interests as well as the interests of the 27 member European Union."
In Luxembourg, Mr Barnier told Europe Ministers that not enough progress had been made on fisheries, the level playing field or enforcement to get the deal done by the summit.
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He made it clear he expects negotiations to continue beyond Mr Johnson's deadline until the end of the month. EU diplomats said that Mr Barnier had their' "full support".
UK government sources claimed Michel Barnier was to blame if the deadline was missed. They accused him of being unable to marshall the 27 member states behind necessary compromises in sectors such as fishing, where France has vowed to show "no weakness".
“The EU will continue to work for a fair deal in the coming days and weeks,” Michel Barnier tweeted.
"There is some movement here and there, but it is not sufficient by far and no tunnel in sight," an EU diplomat said. The “tunnel” is Brussels jargon for secret intense talks to clinch a deal.
"Level playing field, fisheries and enforcement measures remain the key controversial issues," the diplomat said.
“The EU have been using the old playbook in which they thought running down the clock would work against the UK,” a British government source said.
“But in fact all these tactics have achieved is to get us to the middle of October with lots of work that could have been done left undone.”
Mr Barnier miscalculated by refusing to negotiate further on any other issues until there was progress on the three major obstacles to a deal, a strategy the EU dubbed "parallelism", UK sources alleged.
UK sources claimed that with more “realism” from the EU and a significant move on fisheries “we could still get there”.
“This is all the more frustrating because it is clear that we have come a long way since the beginning of the year,” the source said.
“Time is now extraordinarily short. We need the EU to urgently up the pace and inject some creativity.”
The EU has set an end of October deadline for the trade agreement to be finished so it can be ratified before the end of the year and transition period.
British sources claim Mr Barnier told them the deadline was October 15 but that is strongly denied by Brussels sources. The European Commission refused to comment as negotiations were ongoing.
Germany's Europe Minister Michael Roth warned no deal would be the "worst case scenario" for both sides but the EU was ready for it. The EU expected "substantial progress" in "key areas" from the UK.
Mr Roth said, "Let me be very clear - and this is also a message to our British friends - no-one should play down the risks of a no-deal. This would be very bad news for everyone, for the EU and even more so for the United Kingdom.
"In the midst of the most serious economic downturn in decades, it would inflict our citizens yet another serious economic setback."
Finnish minister of European affairs Tytti Tuppurainen said, “We do want to have an agreement with the UK, but not at any cost.”
France’s Europe Minister Clément Beaune urged the EU to stay united after warning on Monday that Paris would not allow French fishermen to be sacrificed to get a deal.
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Ireland's Simon Coveney said, "Both sides are still far apart. EU fishermen are not going to be sold out [...] to get an agreement on a future relationship with the UK on trade."
"In a compromise, we have to move towards each other's position," said Mr Roth.
The chairman of the European Parliament’s fisheries committee said that French fishermen could sue Britain to have continued access to UK waters after Brexit.
Pierre Karleskind, from Brest, France, said, “They are claiming rights over something that were not theirs before entering the European Union. We are saying that we have historical rights."
He suggested “some” would be tempted “to go and sue the United Kingdom on this subject” in court.