By Gabriela Baczynska and Guy Faulconbridge
BRUSSELS/LONDON (Reuters) -British Prime Minister Boris Johnson began a crisis meeting over dinner in Brussels with the EU's chief executive on Wednesday, hours after warning the bloc it must make concessions to clinch a Brexit trade deal and avoid a turbulent year-end breakup.
Fears of a chaotic no-deal finale to the five-year Brexit crisis were running high as Johnson arrived for talks with European Commission President Ursula von der Leyen.
The European Union and Britain have cast the meeting as a chance to break an impasse in negotiations but both acknowledge there is a danger that no trade deal will be in place when Britain finally leaves the bloc's orbit on Dec. 31.
EU diplomats said there was little chance a deal would be agreed over dinner, and the most likely outcome was that they would agree to keep negotiating in a race against time.
"Allons-y," von der Leyen said to Johnson, using a French term for "let's go" after they had greeted each other and taken masks off for photographs.
"Allons-y," Johnson replied, as they headed off for dinner on an upper floor of the star-shaped 1960s modernist Berlaymont building, headquarters of the European Commission.
Earlier Johnson said Brussels wanted Britain to comply with new EU laws in the future or be automatically punished, and was insisting it give up sovereign control over its fishing waters.
"I don't believe that those are terms that any prime minister of this country should accept," he told the British parliament to cheers from lawmakers in his Conservative Party.
Johnson said "a good deal" could still be done if the EU scrapped its demands, but Britain would prosper with or without a trade deal, a phrase he repeated as he left for Brussels.
A British government source said a deal may not be possible, as did EU chief Brexit negotiator Michel Barnier, who joined the leaders for the dinner along with his British counterpart.
Britain formally left the bloc in January, but has since been in a transition period during which it remains in the EU single market and customs union, meaning that rules on trade, travel and business have stayed the same.
That ends on Dec. 31. If by then there is no agreement to protect around $1 trillion in annual trade from tariffs and quotas, businesses on both sides will suffer.
NO-DEAL FEARS
Failure to agree a deal would snarl borders, shock financial markets and sow chaos through supply chains in a world already grappling with the economic cost of COVID-19.
A measure of expected price swings in the British pound known as overnight implied volatility jumped 25% to the highest since March..
Johnson portrays Brexit as a chance to give Britain a fully independent, more agile economy. EU powers fear London wants the best of both worlds - preferential access to the 27-nation EU's markets but with the advantage of setting its own rules.
That, they say, would undermine the post-World War Two project which sought to bind the ruined nations of Europe - and particularly Germany and France - into a global trading power.
German Chancellor Angela Merkel, Europe's most powerful leader, said there was still a chance of a deal but the integrity of the EU's internal market must be preserved.
"If there are conditions from the British side which we cannot accept, we are prepared to go down a road which is without an exit agreement," she told the German parliament.
The main sticking points have been over fishing rights in Britain's rich waters, ensuring fair competition for companies on either side, and ways to solve future disputes.
"Don't get your hopes too high here," Irish Foreign Minister Simon Coveney said. "Failure is a distinct possibility."
Britain said on Tuesday it had clinched a deal with the EU over how to manage the Ireland-Northern Ireland border, and would now drop clauses in draft domestic legislation that would have breached a Brexit withdrawal agreement signed in January.
Michael Gove, one of Johnson's senior ministers, said that agreement opened "a smoother glide path" towards a trade deal.