EU pushes UK to budge at 'critical stage' in Brexit talks

BRUSSELS (Reuters) - The European Union demanded "substantive" movement on Tuesday from Britain on fisheries, dispute settlement and guarantees of fair competition in their talks on a post-Brexit trade deal, with Germany saying they were at a "critical stage".

France said the 27-nation bloc must not yield on fishing rights, while Ireland - the EU member most exposed to any abrupt economic split at the end of the year - said Britain was running out of time to seal the terms of a deal.

Britain, the world's sixth-biggest economy, left the EU in January and has since been locked in painstaking talks with the world's largest trading bloc to keep trade flowing freely.

EU leaders hold a summit in Brussels on Thursday and Friday to assess progress, and British Prime Minister Boris Johnson has also said he wants to know by Oct. 15 if a deal can be reached.

The European affairs minister of Germany - current holder of the bloc's rotating presidency - said the EU was working hard for a deal but was ready if necessary to trade from 2021 without an accord.

"We are at a very critical stage in the negotiations and we are extremely under pressure," Michael Roth told his 26 fellow ministers. "In terms of substance we have not really made progress."

"We expect substantial progress by our friends in the United Kingdom in key areas: in particular on governance, 'level playing field' and fisheries."

Roth said the EU would step up contingency planning in case of failure in the negotiations on a new partnership - which is meant to cover many areas from trade to transport and nuclear ties - from Jan. 1, when London's post-Brexit standstill transition ends.

A trillion euros of annual trade are at stake.

Johnson's spokesman reiterated Britain's stance that it wants a deal "on the right terms": "... if we can't get there we are ready and willing to move forward with an Australian-style outcome which holds no fear."

The bulk of Australia's exports to the EU are subject to tariffs and quotas set under World Trade Organization terms.

LONG ROAD, LITTLE TIME

Johnson, a key face of the 2016 Brexit campaign, has spoken with French President Emmanuel Macron and German Chancellor Angela Merkel in recent days, and was due to speak on Wednesday with the head of the EU's executive, Ursula von der Leyen.

On Tuesday, Merkel said a deal was "in the interests of all" but also flagged the need to prepare for a no-deal outcome.

The EU's chief Brexit negotiator Michel Barnier has been downbeat in his assessment of progress, an EU diplomat said: "It is far from sufficient. 'Level playing field', fisheries and enforcement measures remain the key controversial issues."

France has shown little willingness to compromise over future access to fishing waters and sharing quotas, despite growing pressure from others in the EU to help unlock a deal.

French Europe Minister Clement Beaune said the EU must be "very firm" on its priorities, and that safeguards of fair competition were a must to access the EU's internal market of 450 million people without trade barriers.

Macron is expected to hammer home that message at the summit. But, with markets increasingly jittery, the EU leaders also appear certain to grant Britain time for more talks.

"The road ahead is still long and we have little time," said another EU diplomat.

The EU says a deal must be agreed this month to leave time for ratification by the European Parliament. However, EU diplomats told Reuters the bloc was gearing up to negotiate until mid-November to avoid being assigned blame for any fiasco.

"We will negotiate until the last minute," said Konrad Szymanski, European affairs minister of Poland, one of the EU states most keen to keep close ties with Britain.

(Additional reporting by Sabine Siebold, Paul Carrel in Berlin, Elizabeth Piper in London; Writing by Gabriela Baczynska; Editing by Kevin Liffey and Gareth Jones)

By Gabriela Baczynska and Marine Strauss