EU begins preparations for Brexit trade talks

They said the EU would start "internal preparatory discussions" for the second phase of negotiations.

This would enable them to adopt additional guidelines at their next December summit on how to conduct that second step.

The UK had initially hoped that EU leaders would give the green light on trade talks already on Friday, but lack of detail on how much the UK was willing to pay on its past EU commitments killed off that prospect.

"We would hope that we will be ready by December to initiate phase two, but this depends to a large extent on Great Britain preparing progress to such an extent that we can call it sufficient. The topic of financial commitment is the dominating issue in that regards," German chancellor Angela Merkel told reporters after Friday's meeting.

"We're not halfway there yet," French president Emmanuel Macron insisted. "A lot of work remains to be done" on the UK financial commitments.

Coffee talk

Leaders were unmoved by British prime minister Theresa May's intervention during the informal dinner on Thursday night.

Over coffee, May pleaded with fellow leaders to agree to a Brexit deal that she can defend at home, an EU source said.

She told the 27 leaders the UK was committed to the security and defence of Europe, and that an agreement on citizens' rights was within reach.

Florence 'not my last word'?

According to an EU official, May also said on the financial settlement, which is the main stumbling block in talks, that "my last word was not said in Florence."

May said last month in a speech in Italy that no EU member states should worry about getting less or having to pay more into the current EU budget, and that the UK would honour commitments made during its EU membership.

"We are going through them line by line," she told press about the financial commitments.

Despite pleas from the EU to clarify what the UK was willing to pay as part of the divorce settlement, May appeared to have stuck to the UK position which sees the money as a kind of "investment" for future EU market access.

"The full and final settlement will come as part of the final agreement that we are getting in relation to the future partnership," May told reporters.

As happened before in earlier summits, no EU leader spoke or asked questions after May's intervention at Thursday's dinner.

Unmoved

The 27 leaders then met on Friday without May and were joined by EU chief negotiator Michel Barnier.

They were not moved by May's five minute-long plea.

"It was the most candid, the most forthcoming speech that May has delivered so far on the Brexit issue … I think it will not change the assessment today," Maltese prime minister Joseph Muscat said Friday about the British PM's intervention over coffee the night before.

The Lithuanian president, reflecting on May's comments, said words were nice, but not enough.

"Still we are caged in some kind of rhetoric negotiations in the media … It is time to start real negotiations," Dalia Grybauskaite said, arriving on the second day of the European Council.

Irish PM Leo Varadkar said May's speech at the summit was "very good, very positive", but details were still needed.

On Northern Ireland, May acknowledged the issue needs specific solutions, and she pledged that no physical infrastructure should be added at the border between Northern Ireland and the Republic of Ireland.

Danish prime minister Lars Lokke Rasmussen also emphasised that the Florence speech needed to be "moved" into the negotiating room.

"I will not say anything on Brexit, because there is nothing to say." EU Commission president Jean-Claude Juncker said curtly.

Deadlock?

For his part, the European Council chief tried to diffuse tensions by telling reporters the schism between the UK and EU was not as bad as it seemed.

"My impression is that reports of deadlock between EU and UK are exaggerated," Donald Tusk said Friday, adding that he is a bit more optimistic than Michel Barnier, the official EU Commission Brexit negotiator, who said last week negotiations are in a "deadlock."

"Internal preparations" for adopting additional guidelines to allow Barnier to negotiate on a future and trade deal, and possible transition arrangement, will officially start now.

Tusk said that the preparations will take into account proposals from the UK.

The Commission will have to make a proposal on the additional guidelines for the EU-27 to adopt.

Internal discussions and scoping on such a deal have already started within the EU institutions.