LONDON (BLOOMBERG) - The European Union isn't taking Boris Johnson's threats to walk away from seven months of trade negotiations at face value.
On Friday (Oct 16), his deadline for deciding whether to continue discussions or walk away, the British Prime Minister blamed the EU. He said the UK will prepare to leave the bloc's single market at the year-end without a trade agreement in place. But he twice swerved questions about whether he would break off the talks.
The EU should "only come to us if there is some fundamental change of approach", Mr Johnson said in a televised statement.
One of his spokesmen later described the trade discussions as "over" and said the bloc's negotiators should only come to London next Monday if they are prepared to offer concessions, intensify talks, and work on the actual text of an accord.
For the EU, that leaves the door open, for the moment at least, to future discussions between the two sides. The signs are growing that the bloc may be prepared to make key compromises.
European Commission President Ursula von der Leyen said on Friday that the EU will intensify the talks, while the two sides' chief negotiators, the UK's Mr David Frost and the EU's Mr Michel Barnier, will speak again early next week.
"I look with a positive sense to Boris Johnson's reaction now that he is implicitly stating that he also now wants the talks to continue," Dutch Prime Minister Mark Rutte said.
While businesses complained about the added uncertainty of leaving without a deal in the middle of the coronavirus pandemic, the pound swung between gains and losses for much of the day - a sign traders see as Mr Johnson's comments as political posturing.
Another item of concern for traders was the decision late on Friday by Moody's Investors Service to lower its rating on Britain's debt by one notch. Among the issues listed by Moody was Britain's "inability to reach a trade deal with the EU that meaningfully replicates the benefits of EU membership".
It was Germany's Chancellor Angela Merkel who took the biggest step toward a compromise. At a Friday news conference in Brussels, she highlighted the need to make concessions on the issue of a competitive playing field.
The topic of state aid has been one of the biggest obstacles, and even the UK has acknowledged the EU has the stronger argument. Encouragingly for the British, Dr Merkel's solution resembles a UK proposal that the EU had rejected.
"Both sides need to make a move toward each other," she said.
"If we accept and recognise that the UK wants to strike out on its own path and doesn't want to conform to certain rules of the single market, or it wants to introduce new state aid regimes that don't exist in the EU, then we need to have mechanisms for the new distance between the EU and the legal framework of the UK."
Any accord still hinges on French President Emmanuel Macron compromising on his demand to have the same access to British fishing waters. While French officials have hinted in recent days that that may happen, the EU wants to solve the level playing field issue first.
"Fishing is used by the UK in a tactical way," Mr Macron said.
If the two sides fail to agree by year-end, businesses and consumers will be left grappling with the cost and disruption of tariffs and quotas, while relations between the two sides could be poisoned for a generation.
While the politicians may have dialled up the rhetoric in the past 24 hours, the real question, an EU diplomat close to the talks said, is whether, even behind the scenes, the two sides are prepared to make the leaps necessary to get a deal. And that's still not clear.
Since the UK's referendum on EU membership in 2016, relations between Britain and Europe have been plagued by one side misunderstanding the other. The risk remains that the EU has once again misjudged Mr Johnson's willingness to stay at the negotiating table.