Leo Varadkar, the Irish prime minister, and Mark Rutte, the Netherlands’ prime minister, at a press conference in Dublin on Wednesday © PA

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Ireland expects the UK to make a new proposal imminently to break the deadlock over Brexit talks ahead of a crucial EU summit next week, as the British government said it could be close to an agreement.

A draft compromise on the divorce negotiations was blocked on Monday after objections by the Democratic Unionists, the Northern Irish party that provides the UK government with its majority, making the dispute over the Irish border the major obstacle to progress in the Brexit talks.

Speaking on Wednesday after a phone call with Theresa May, Leo Varadkar, the Irish prime minister, said he expected his UK counterpart, to present a new offer “tonight or tomorrow” in a bid to revive the deal. The offer did not come overnight and was still awaited in Dublin on Thursday morning, said a person close to talks. 

Mr Varadkar added that he had not discussed “any particular words or combination of words or language but I certainly indicated a willingness to consider any proposals that the UK side have”.

Downing Street said on Thursday that Mrs May believed she was “close to an agreement” on a final Brexit divorce deal but that “more work needs to be done”.

Mr Varadkar insists that his “absolute red line” remains that Brexit should not lead to a hard border in the island of Ireland and argues that different rules on either side of the border could lead to such an outcome.

But, in blocking Monday’s draft text, the DUP highlighted its concerns that the compromise’s fallback provisions for “regulatory alignment” after Brexit between the Irish Republic and Northern Ireland would subject the region to a different economic regime from the rest of the UK.

The DUP, which says such an arrangement would create a border in the Irish Sea, has accused Mr Varadkar of “playing a dangerous game” by putting the Irish economy at risk from a no-deal Brexit.

Meanwhile, claims by the UK’s Brexit secretary David Davis that the entire UK would pursue “regulatory alignment” with the EU stoked tensions this week with supporters of hard Brexit within the ruling Conservative party.

One suggestion to break the impasse is that an addendum to the text would guarantee that any north-south regulatory alignment after Brexit would not break up the UK. 

British officials said there was “a lot of sherpa-ing going on” — a reference to the behind-the-scenes work being carried out by Olly Robbins, the prime minister’s “sherpa” and principal negotiator.

In a sign of rising optimism, Mrs May has cleared her diary for a possible trip to Brussels on Thursday afternoon to finalise a deal with Jean-Claude Juncker, European Commission president.

Britain wants to secure the EU’s verdict at a crucial summit next week that the divorce talks have made sufficient progress to begin talks on future relations and a transitional deal — keenly sought by business.

The European Commission said on Thursday there was still “no white smoke” in the talks, but that Brussels was “ready” to receive Mrs May and her team in Brussels “at any moment in time when they’re ready”.

“We work for a full week, 24/7 and our week includes Sunday,” said a spokesman for Mr Juncker, who referred to midnight on Sunday as the deadline for a deal to be reached and then signed off by member states ahead of the summit. “Every day lost makes this more difficult.”

But the UK government has expressed scepticism about such deadlines. “Some of them have already come and gone,” said Mrs May’s spokesman. He added: “We have always said we are working towards the European Council” on December 14-15.

With agreement close on the UK financial settlement and citizens’ rights, the Irish question is last of three priority areas in the first phase of the talks without a deal. Mr Varadkar has ruled out any substantive changes to the Monday text “in any way that changes the meaning”, saying it represented a “good deal” to avert the risk of a hard border in Ireland.

Dublin is concerned that the reinstatement of border checks on the frontier would damage the 1998 Good Friday peace pact that ended three decades of sectarian violence in Northern Ireland. Because of deepening trade links in the “all-island economy”, it also wants to avoid any divergence in economic regulations between the Republic and the north if the UK leaves the EU customs and internal market regime. 

“Ultimately it is up to them to come back to us, given the events that happened on Monday,” Mr Varadkar said as he welcomed Dutch prime minister Mark Rutte to Dublin. 

Mr Rutte said the EU would not “loosen” its stance in the talks. “On each of these three issues sufficient progress needs to be established, and if somehow your scenario would play out and somewhere along the line Britain would opt for a hard Brexit all by itself, the impact on the United Kingdom would again be infinitely bigger than on us.”

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