Officials spoke out after Brexit Secretary Dominic Raab threatened to withhold some of the £39bn divorce settlement if negotiators fail to reach an accord.
Mr Raab’s comments received short shrift in Brussels where officials said the UK would need to keep Europe’s capitals onside if it wanted to avoid the worst effects of a no-deal scenario such as aircraft being grounded and Eurostar train services being halted.
One senior official said: “Countries like Italy or Poland will not even get around the table unless the money is there to stop a spending shortfall.
“Anyone who thinks that the EU would sign an agreement on aviation, for example, without a financial settlement would be a fool.”
Theresa May’s hopes for support from EU leaders for her Chequers proposals suffered a blow when it emerged they were not planning to issue chief negotiator Michel Barnier with new instructions.
The Prime Minister was banking on some governments telling Mr Barnier to soften his red lines on the single market and customs union but insiders insisted this would not happen, making the a no-deal Brexit much more likely.
The diplomat added: “I don’t see a situation where Michel Barnier says ‘I’m fine with the mandate’ and the heads of state give him another one.
“If we should give additional guidance, and that is a big if, it would only be done in concerted discussion with the commission.”
Foreign secretary Jeremy Hunt had warned without a “change in approach from the EU negotiators” there was a “very real risk of a Brexit No-Deal by accident”.
Mrs May will deliver a presentation at a summit in Salzburg next week before meeting to discuss Brexit without the Prime Minister the following day.
The summit comes with just weeks to go before an agreement is needed ahead of Britain’s departure from the bloc on March 29 next year.
An EU source said the leaders would discuss the details of an extraordinary Brexit summit pencilled in for November.
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11.30am update: Gina Miller launches campaign to “end chaos” of Brexit
Gina Miller has launched a national campaign to “end the chaos” of Brexit by publishing “unspun facts” so people can decide for themselves what they want to happen next.
Announcing the movement in Dover this morning, Ms Miller said “political infighting” and other “bitter” tensions rising from the debate had “mired” the country.
The Guyanese-British 53-year-old, who won a High Court case against the Government over the involvement of Parliament in Brexit, said in a speech: “Today there are just 196 days to go until our scheduled departure from the European Union.
“The end of 46 years of shared history, experience and endeavour with our European partners and allies.
“Every day, the hour glass runs emptier, the clock ticks more loudly.
“But where is that settled plan that we were once promised would be so easy?
“What little confidence there might once have been is now, sadly, in very short supply.
“There is a panic in the air – and time is fast running out.
“Many Britons, irrespective of whether they voted Leave or Remain on 23 June 2016, are beginning to wonder how this journey will end.
“The reality is that no-one truly understands what Brexit means for Britain.”
9.20am update: Fashion industry voices concerns over Brexit uncertainty
UK fashion chiefs have warned Brexit is causing uncertainty for their £32bn industry.
British Fashion Council chairwoman Stephanie Phair said the industry was still unsure how to plan for Brexit in their strategies.
She said: “It is an industry that is complex. It requires manufacturing abroad, designing here, reshipping abroad. It is a mix of goods, services and talents.
“So what we are talking to Government about is really frictionless borders, tariff-free access to the EU and the ability for talent to move, the free movement of people. We continue to have these conversations.”
Ms Phair said she was “optimistic” about ensuring visas continue to be available for models and other top talent to move between fashion week events around the world.
8.39am update: Freeman urges MPs to let May deliver Brexit
Conservative MP George Freeman has called on party colleagues to allow Theresa May to deliver Brexit but said she should then step down to allow a new generation to shape the UK’s future relationship with the continent.
Mr Freeman warned there was “a danger in Parliament of a real crisis” this winter, as MPs try to impose their vision of Britain’s longer-term relations with the EU.
He told BBC Radio 4’s Today programme: “I think they risk making Parliament, the Conservative Party and the Prime Minister look shambolic.
“I think we should let the Prime Minister get Brexit over the line at the end of March and leave the longer-term debate about what our new relationship is to a new-generation leader.”
8.06am update: Brexiteer businessman predicts need for immigration
Brexit-backing Wetherspoon pub chain founder Tim Martin said the UK will need “a considerable level of immigration” over the coming decades to maintain its economic health.
He said: ”Although I believe in Brexit, I think the UK’s got quite a low birth rate and that we need a gradually rising population, and that we will need a considerable level of immigration over the next 10, 20, 30 years to be a successful economy.
“Having said that, I think that uncontrolled immigration EU-style is not a good thing and it has probably kept people’s wages down a bit.
“We will be OK. I think population is at more or less a record high, the number of people in work is at more or less a record high, so it’s going OK.”
7.30am update: Business leaders warn of no-deal “hammer blow”
The CBI has warned a no-deal exit from the European Union would deliver a “hammer blow” to the British economy.
Drector general Carolyn Fairbairn said the country should get behind Prime Minister Theresa May’s Chequers proposals as a blueprint for a Brexit deal.
She warned against “throwing everything up in the air” by tearing up Chequers and seeking an alternative solution at this late stage in negotiations, with fewer than 200 days to go to the scheduled date of Brexit in March 2019.
Ms Fairbairn said; “I’m afraid that this is happening in the here and now, so the urgency of stepping back from the cliff-edge is growing daily.
“The hammer blow to our economy would be enormous and I think many smaller businesses can’t properly prepare and that just doubles the potential impact if we go over that cliff.
“We have to have a deal.”