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Oh I know they want us to stay. I think, given the polling, were the public given the choice, we probably would vote to stay. I think a peoples vote is more likely than not.
This is all just one big game of chicken. The 18 months of negotiation don't need to start again if you want to vary one or two areas slightly. You just keep negotiating...Now, the UK can say...look, this isn't going to fly so if you want this deal to work, we need a bit of movement in x and y. EU might say no, but they might think their interests are better served by a bit of concession.
I work close to the work on the EU Renewable Energy Directive. Negotiations tend to go down to the last minute, rather than being done and dusted weeks in advance.
Scrabble
They're offering that today, by explicitly saying that a cancellation is still available. Other than that, we sent negotiators there for 18 months and waited until the end of the negotiations to kick up a fuss? I'd imagine that they quite reasonably think that should will stand by what they negotiated with us in good faith.
As for further concessions - I think that's probably what May et al thought they could bluff out of the EU. I think they've just had that bluff called.