* UK sees 30%-40% chance of Brexit trade deal - Times
* EU diplomat says it is 50-50
* EU's Michel uncertain of a deal
* Talks due in London next week
(Adds British source)
By Guy Faulconbridge, Gabriela Baczynska and John Chalmers
LONDON/BRUSSELS, Sept 4 (Reuters) - The chances of Britain
leaving the European Union without a trade deal have risen
sharply as negotiations have been threatened by London's
insistence that it have full autonomy over its state aid plans,
negotiators and diplomats said.
The United Kingdom left the EU on Jan. 31, turning its back
after 47 years on the post-World War Two project that sought to
build the ruined nations of Europe into a global power.
The British exit followed more than three years of wrangling
over an exit deal since the 2016 referendum that sent shockwaves
through global financial markets. Since Brexit, talks on a new
trade deal have so far made little headway.
But fears in London, Brussels and other European capitals
are mounting that a British exit without a trade deal could sow
yet more economic chaos amid the turmoil of the coronavirus
crisis which has hammered European economies.
"The chances for a deal, or a no-deal, are 50/50," said one
senior EU diplomat.
"There has been absolutely no movement from the British side
in the talks. If this approach doesn’t change quickly, we won’t
be able to negotiate a deal in time."
Failure to reach a trade deal could hammer financial markets
as nearly a trillion dollars in trade, from car parts and
medicines to lamb and fish, would be thrown into turmoil.
A British source close to the negotiations said the European
Union was slowing down negotiations and should understand that
its demands on state aid and fishing were not compatible with
Britain's status as an independent country.
"We have also consistently tried to move discussions
forwards but have been prevented from doing so by an EU which
insists that everything must go at the pace of the most
difficult issue," the source said.
"Their ask that we accept continuity with EU state aid and
fisheries policy is simply not compatible with our status as a
fully independent country," the source said.
Prime Minister Boris Johnson's office said the goal was to
reach a deal but that the EU needed to show more realism. For
their part, EU officials are seeking clarity.
"Sooner or later, the UK should clarify what they want. It's
not possible to leave the European club and at the same time
keep all the benefits," European Council President Charles
Michel told reporters.
"We have no certainty that we'll reach a deal. I hope it
will be possible - but not at all cost ..."
BREXIT CRUNCH
The current sticking point is state aid.
The bloc's Brexit negotiator Michel Barnier went to London
on Tuesday to tell his UK counterpart, David Frost, that Britain
must move on state aid, or there will not be an agreement,
according to EU diplomats.
Afterwards, Barnier said London had not shown enough
flexibility and creativity on fair competition, fisheries and
solving disputes in order to seal a deal on new trade ties by a
"strict deadline" of end-October.
"The Commission now worries the next negotiating round will
end up with nothing," the diplomat said. "If the UK doesn’t move
a bit on the state aid thing, we have a problem."
Britain does not want to allow Brussels authority over its
state aid rules, stoking one of the bloc's greatest fears: that
it shall one day face strong competition from an economy just
outside its borders.
"The EU need to realise that what they’re asking for is at
odds with what the British people voted for, twice, and not
something we could accept," the British source said.
Senior officials in British Prime Minister Boris Johnson's
office see only a 30%-40% chance that there will be a Brexit
trade agreement due to the impasse, the Times reported.
"There is a risk of a no-deal scenario at the end of the
year," an EU official said. "People need to be ready for that."
(Writing by Guy Faulconbridge; Editing by Kim Coghill, James
Davey and Alison Williams)