Brexit talks face a roadblock this week after France refused to compromise on fishing, with Government sources hoping Angela Merkel will intervene to break the impasse.
Sources close to the negotiations said that Emmanuel Macron was refusing to soften his stance and had adopted an “egregious” position on the issue.
The UK has proposed adopting a similar arrangement to Norway, whereby fishing quotas would be agreed annually in shared fishing zones.
However, sources said that Brussels negotiators, under pressure from France, have “not moved at all” leading to fresh deadlock.
The Government hopes the German Chancellor will manage to persuade the French President to budge. A Whitehall source said: “We are relatively optimistic but that doesn’t mean it won’t end in tears. Fisheries is the biggest thing. We are hoping Merkel can unlock Macron on fisheries.”
However, a Government source suggested that there was “light at the end of the tunnel” on the other key sticking points of state aid and finding a suitable dispute resolution mechanism.
Adding to the increasing sense of optimism, the EU’s chief negotiator Michel Barnier has extended his stay in the UK until Wednesday. Talks between the two sides will then continue in Brussels for the rest of the week.
Northern Ireland Secretary Brandon Lewis said the decision to prolong the negotiations was a “very good sign”.
Mr Lewis said: “The fact that Michel Barnier has outlined in the last week or so that they are going to come back and do these intensive negotiations, he recognises the EU do need to move, and that he is staying through to next week, is totally a very good sign.
“I think there is a good chance that we can get a deal but I think it is for the EU to understand that it is for them to move as well.”
Mr Lewis also played down suggestions that the UK’s relationship with the US could be undermined by Brexit.
Democrat candidate Joe Biden, who goes into next month’s presidential election with a healthy lead in the polls, has warned he will not sign a free trade agreement with the UK if the Good Friday Agreement is undermined by the decision to leave the EU.
Senior Democrats have also criticised UK Government plans to overwrite sections of the Withdrawal Agreement with the Internal Market Bill, which is currently making its way through the Commons.
Mr Lewis said: “We absolutely protect and abide by the Good Friday Agreement. It is absolutely key.
“We have always worked very closely with whoever is the president of the USA. We as a country have a long, special relationship to build on, on a wide range of issues across history.”
Meanwhile, senior figures in Mr Barnier’s team told EU diplomats that Brussels would not be starting the intensive “tunnel” stage of the talks yet.
The intensive negotiations, which are held under a media blackout and without updates to the European Parliament or diplomats, are used to bridge the most sensitive gaps when a deal is close but not yet clinched.
“The commission assured member states they would be kept in the loop,” one diplomat said.
“The result of the negotiations will be Barnier’s recommendation to them so he knows he has to keep them on board.”
The diplomat added: “The mood music is good but don’t expect a deal before the first week of November, or even the week after that, if at all.
“There’s a mutual interest in keeping the mood music sweet at the moment, despite the fact there are significant differences in position, otherwise the markets would probably start to panic.”
The Daily Telegraph understands EU27 diplomats are likely to be given a briefing on progress in the intensified negotiations near the end of this week.
Ireland’s Deputy Prime Minister Leo Varadkar on Sunday said that he believed Britain and the EU would secure a free-trade deal in the coming weeks.
“It’s by no means guaranteed but I think on the balance of probabilities it will be possible to agree a free-trade agreement with the UK which means there will be no quotas and no tariffs,” he said.