By William James and Gabriela Baczynska
Britain said on Monday it could not agree a divorce deal with the European Union without a framework pact on future relations, throwing down the gauntlet to the bloc which also says it cannot move on talks until London does.
Both sides are eyeing significant progress at an Oct. 17-18 summit in Brussels but in different sequences - Prime Minister Theresa May wants to see the EU's proposal for post-Brexit ties while the EU seeks a new offering from her on the Irish border.
What is up in the air is timing - who plays their hand first, and after several days of positive noises about movement at the next summit, both sides are now tempering expectations.
May's spokesman repeated Britain's line on Monday that Brussels should budge first and that "there can be no withdrawal agreement without a precise future framework".
"There's a difference between people talking optimistically about a deal, and a deal including both the withdrawal agreement and the future framework, actually being agreed," he said.
The 27 remaining members of the EU might delay work on fleshing out their proposal for strong trade ties after Brexit and will instead focus on their own preparations this week, including contingencies for a "no-deal" scenario - given the profound divisions within May's camp over the terms of Brexit.
Negotiations on ending four decades of Britain's membership in the EU have entered their final stage, more than two years after Britons voted narrowly for Brexit in a referendum.
Top EU officials sounded upbeat last week about chances for a withdrawal deal as soon as next week's summit.
But London has yet to present in writing a new proposal for the biggest hurdle in talks now - how to avoid extensive, post-Brexit checks along the 500 km (320 miles) of border between EU member state Ireland and Britain's Northern Ireland province that will become the only EU-UK land frontier.
EU officials and diplomats say the bloc will not put forward its proposal for future trade before reaching an agreement with Britain on an emergency fix that would keep the Irish border open - preserving a key aspect of a 1998 peace treaty that ended decades of sectarian bloodshed - regardless of how Brexit goes.
"Joint priority: ensuring the orderly withdrawal of the United Kingdom to protect the rights of citizens, investments and geographic indication (locally made products protected by EU law)," chief EU Brexit negotiator Michel Barnier said on Monday after meeting the Italian prime minister.
"This is the basis of trust for an ambitious future economic and strategic partnership (with Britain)."
But Britain wants Brussels to first propose its vision of a future trade relationship. "There remain big issues to work through," May's spokesman said.
"CARROT AND STICK"
Given May's struggles in swinging her divided Conservatives behind her negotiating approach, any final withdrawal agreement may well have to wait until a special EU summit in mid-November.
Barnier was to present his "Outline of New Relationship with the UK" at the bloc's executive European Commission on Wednesday. But EU diplomats and officials said on Monday the focus of their session would instead be on the EU's own Brexit preparations, including for a "no-deal" outcome.
That could upset London by offering up dire examples of the potential collapse in transport and other economic ties in case the sides fail to agree on a managed divorce - although May's government has itself released reports attesting to the likely disruptions of Britain crashing out of the EU.
"It's a carrot-and-stick approach - we are trying to push them into a deal," a senior EU diplomat said of the change of tone from talking up progress last week to returning this week to no-deal preparations.
The EU insist Britain come to terms on its withdrawal treaty, notably now on the Irish border "backstop", before Barnier enters into talks on a future trading relationship.
The bloc's negotiators believe abandoning this sequencing would allow Britain to stall on the Irish issue. They are only expected to present to member states their outlines for future ties early next week.
London, on the other hand, has long been keen to do withdrawal and subsequent trade deals in parallel, arguing that the solution on Ireland lies in future smooth EU-UK trade.
Barnier's boss, European Commission President Jean-Claude Juncker, acknowledged at the weekend that it was hard to keep the two issues - Ireland and future trade - strictly separate.
(Refiles to remove extraneous word "have" in paragraph 6, restores dropped word "the" in paragraph 11.)
(Additional reporting by Jan Strupczewski and Elizabeth Piper; Editing by Mark Heinrich)