Speaking in the German parliament, she insisted the bloc must prepare for the future relationship negotiations ending without an agreement. The German Chancellor said: “I will continue to work for a good solution, but we, in the EU and in Germany, must also be prepared for the case that an agreement will not happen after all.” The veteran leader was updating politicians on her priorities as Germany takes over the EU’s rotating presidency.
Mrs Merkel said only “minimal” progress had been made between Britain and Brussels during the previous five rounds of trade negotiations.
She claimed talks could run into the autumn despite Downing Street repeatedly insisting a deal should be wrapped up this summer.
“The progress made during the negotiations have been, to put it mildly, minimal,” Mrs Merkel said.
“With Britain, we have agreed to speed up these negotiations to be able to agree on a deal in autumn, which would then also need to be terrified by the end of the year.”
The trade talks have remained deadlocked because Michel Barnier, the EU’s chief negotiator, has refused to budge on his hardline demands.
After Brexit the bloc is still hoping to have the same level of access to British fishing waters for European boats and a regulatory level-playing field, with a role for the European Court of Justice.
Face-to-face negotiations were resumed this week after the outbreak of the coronavirus pandemic forced the UK and EU to hold talks via video link.
David Frost, the Prime Minister’s chief trade negotiator with the EU, has led a team of 20 officials to Brussels in hope of finding a breakthrough.
Mr Johnson's spokesman said: "You have heard David Frost and the Prime Minister say on a number of occasions that we continue to work constructively with the EU and we believe there is a free trade agreement to be reached but we have been very clearly that we will be prepared for either eventuality at the end of the year, whether that be a free trade agreement or having a trade relationship on the same terms as Australia currently has.”
They added the UK would continue to prepare for leaving the EU's single market and customs union at the end of the year.
The spokesman said: "We are leaving the customs union and the single market in all circumstances so business and others have already been advised to get ready for that and a very significant number have already done so.
“We’ve set out in very great detail what will be happening at the border once we have exited the transition period and we’ll continue to be working with employers to make sure they’ve got all the information they need."
Earlier this week Mr Frost told Brussels a deal must be wrapped up this summer – because he has a new job.
Mr Johnson has announced his EU negotiator as the next National Security Adviser.
Mr Frost will replace outgoing civil service boss Sir Mark Sedwill In August.
The promotion, confirmed before the Brexit talks have been resolved, took European diplomats by surprise.
It was being seen as a stark reminder that Mr Johnson will walk away from the discussions if a deal cannot be done this summer.