—AFP

Brussels hopes to wake up to a Brexit breakthrough Wednesday as EU and British negotiators worked hard through the night on a draft agreement.

The pound hit its highest level in five months after both sides voiced cautious optimism that an outline agreement could be found before Thursday's key European summit.

Any deal would still have to go to EU leaders at that summit and then be voted on by a sceptical British parliament -- perhaps as early as during a special session on Saturday.

But EU officials said London has made enough concessions on the issue of trade across the Irish border to bring a long-sought deal within reach.

By agreeing to a form of customs boundary in the Irish Sea, Britain could allow its province of Northern Ireland to remain under EU rules, prevent a return to a hard land border with EU member Ireland and salvage a negotiated withdrawal.

But Prime Minister Boris Johnson may struggle to convince hardline Conservative eurosceptic MPS and his allies from Northern Ireland's loyalist Democratic Unionist Party (DUP) to accept this concession -- less than three weeks before Britain is due to leave the EU.

Nevertheless, EU negotiator Michel Barnier and British Brexit minister Stephen Barclay judged that a deal was close enough to justify officials working overnight to draw up a withdrawal treaty text on the eve of the EU summit.

Officials were tight-lipped as a rumoured midnight deadline came and went. "Talks are ongoing," a European official said.

Barnier said a text must be on the table by early Wednesday if member state governments are to have a chance to consider it before the summit, as the 28 national leaders have no plans to debate the details of the agreement.

If the early-Wednesday deadline is missed, officials said talks could instead resume next week and a special summit be called just in time for Johnson to fulfil his pledge to lead Britain out of the bloc on October 31.

'Positive momentum'

Downing Street said Johnson had called Macron and had a "constructive" and "good discussion".

But German Chancellor Angela Merkel outlined why EU officials are driving a hard bargain and hoping Britain will commit to a "level playing field" in post-Brexit trade and commerce.

"One thing is clear, Britain will develop into another competitor on the doorstep of Europe," Merkel told German industrialists.

"And therefore the EU will be challenged to become more competitive and to assume geopolitical responsibility."

Glimmer of hope

"The last moment is always a bit later than you think," one German government official told AFP, suggesting Brexit would have to be postponed beyond the end of the month if talks are to reach a successful conclusion.

"Johnson has modified his original proposals to the effect that he has clearly stated that there will be no customs border on the Irish border," a European diplomat told AFP.

In London, DUP leader Arlene Foster told the BBC that she wanted to support a deal, but would not do so if she felt it divided Northern Ireland from the rest of the UK and added that without her party's support "everybody knows" it would not pass in parliament.

If no deal is reached by Saturday, Johnson will fall foul of a British law demanding he ask the EU to postpone Brexit for a third time rather than risk a potentially disastrous "no deal" departure. —AFP