BRUSSELS (Reuters) - The European Union’s Brexit negotiators believe a divorce deal with Britain is “very close”, diplomatic sources said, in a sign a compromise on the most contentious issue - the future Irish border - might be in the making though details were scarce.

FILE PHOTO: An official inspects a Union Jack flag next to the European Union flag, ahead of a meeting between Britain's Secretary of State for Exiting the European Union, Dominic Raab, and European Union's chief Brexit negotiator, Michel Barnier, at the EU Commission headquarters in Brussels, Belgium July 19, 2018. REUTERS/Francois Lenoir

The EU signalled on Thursday it was engaging with new proposals emerging in Britain on how to avoid extensive border checks between Britain’s province of Northern Ireland and EU member state Ireland after Brexit, the critical potential deal-breaker in the talks to end four decades of union.

A member of EU Brexit negotiator Michel Barnier’s team told a briefing with national diplomats in Brussels late on Thursday that a divorce pact with Britain was “very close”, according to two sources present.

“We are going in the right direction,” a senior EU diplomat said separately of the work on the Irish fix.

Two days of cautiously positive comments from Brussels have helped strengthen sterling but Britain has yet to formally put any new proposals to the EU in writing.

On Friday evening, EU Brexit negotiators told ambassadors of the 27 states remaining in the bloc that there was still no breakthrough on the Irish issue and much would depend on what their British counterparts bring to Brussels next week.

The two sides are trying to push the divorce deal as well as an agreement on post-Brexit relations over the line in time for leaders’ summits scheduled for Oct. 17-18 and Nov. 17-18.

Under the plan described by EU sources, Britain would give up on insisting on only a time-limited emergency Irish border solution. Britain would get its way in having all of the United Kingdom - rather than just Northern Ireland - stay in a customs union with the bloc if the “backstop” is triggered.

Irish Prime Minister Leo Varadkar, speaking in Brussels on Thursday, urged Britain to make new proposals well ahead of the EU summit in less than two weeks to leave enough time for analysis. Sources in Brussels say the devil is in the detail.

“Negotiations are not easy because we also have to be critical that we receive different signals from London,” European Commission head Jean-Claude Juncker said in Austria.

“There is a polyphonic chorus at the level of the British cabinet and we try to arrange the pieces ... so that they become a melody,” he said, referring to divisions within Prime Minister Theresa May’s government over the terms of Brexit.

Any such compromise would leave the EU concerned that Britain could use Northern Ireland’s special access to the bloc’s single market to sell cheaper goods that would not adhere to EU labour, environment and other standards.

The bloc worries that London would try to use that unique trade arrangement as a building block for the overall future trade relationship and win an unfair competitive edge.

CANADA +++

For Britain, the problem is agreeing to checks on goods and livestock with Northern Ireland, something strongly opposed by the province’s Democratic Unionist Party - on whose votes May relies to govern.

Britain’s Brexit ministry said on Friday London’s new proposals on the Irish border would preserve the integrity of the United Kingdom.

While the EU is pushing London on the Irish issue, the 27 states remaining in the bloc are also fleshing out their proposal on future ties with Britain.

The chairman of EU leaders, Donald Tusk, said on Thursday a “Canada plus plus plus” was on offer - meaning an advanced free trade deal coupled with close security ties, tight cooperation on global affairs and research, among other elements.

Another senior EU diplomat said the EU would propose “zero tariffs and zero quotas” in trade with Britain after Brexit, which would go beyond what the bloc has with Canada.

Such a proposal goes down well with May’s critics at home who advocate a more uncompromising split with the EU than she is seeking. But for the EU an Irish backstop would be an essential part of any such offer, which, in turn, is not to the liking of Brexiteers, who do not want Britain’s means to forge independent trade deals limited by staying in a customs union.

Any deal between May and fellow EU leaders must be endorsed by both the EU and British parliaments, another hurdle to clear to avoid the most damaging scenario of Britain leaving the bloc with little in place to mitigate the economic shock.

“Time is pressing. All partners know that,” a German government spokesman said. “Britain exiting without an agreement would not be in the interests of Britain, Europe or Germany.”