EU Council President Donald Tusk said on Wednesday the bloc does not want to "build a wall" with Britain due to Brexit, but offered only a limited fair trade deal after the UK leaves the European Union.
Tusk unveiled tough draft EU negotiating guidelines for Brexit trade talks that rebuffed British Prime Minister Theresa May calls last week for the deepest possible trading arrangement.
The guidelines also made no mention of a special deal for Britain's financial services sector, prompting British finance minister Philip Hammond to retort that an agreement which excluded the City would not be "fair".
"My proposal shows that we don't want to build a wall between the EU and Britain. On the contrary, the UK will be our closest neighbour and we want to remain friends and partners," Tusk told a press conference in Luxembourg.
The former Polish premier, who met May in London last week, said the EU wanted a deal "covering all sectors and with zero tariffs on goods" that would resemble the conventional trade deal the bloc has with Canada.
But he insisted that London could not "pick and mix" the benefits of EU membership if it was going to leave the bloc's single market and customs union as May has promised.
- 'Drifting apart' -
"Because of Brexit we will be drifting apart. In fact, this will be the first FTA in history that loosens economic ties, instead of strengthening them," Tusk added.
The draft negotiating guidelines, which are expected to be adopted by leaders of the remaining 27 member states at a summit on March 22, said that Britain's own red lines "will inevitably lead to frictions."
"This will unfortunately have negative economic consequences," they said, adding however that the EU would be ready to "reconsider" its offer if Britain's positions were to "evolve."
Luxembourg Prime Minister Xavier Bettel insisted there could be "no cherry-picking" by Britain, adding that "Brexit is a damage limitation exercise".
May used her speech last week to call for an EU-UK deal that worked "more fully than any free-trade agreement anywhere in the world today".
But she acknowledged it was time to face "hard facts" about the economic consequences of Britain's shock 2016 vote to leave.
- 'Britain is not Mexico' -
Her finance minister Hammond however dug in on Wednesday about a financial services deal despite the EU apparently ruling it out, saying it would be in their "mutual interest" to include the sector.
"A trade deal will only happen if it's fair and balances the interest of both sides," Hammond said in a key speech in London's Canary Wharf.
The EU's tough stance is partly inspired by fears that if Britain gets a bespoke deal it could inspire the 27 remaining member states to leave and demand special treatment themselves.
The European Parliament -- which will have the final veto on any Brexit deal -- later set out its idea for an "association agreement" with Britain which would be "far broader" than a trade deal.
"Britain is not Mexico, Britain is not Morocco, Britain is not Ukraine," the European Parliament's Brexit coordinator Guy Verhofstadt said, while urging Britain to stay as closely aligned to the EU as possible.
European Parliament President Antonio Tajani said that an eventual free trade deal "may go deeper than Canada or Japan" but that they remained the models.
A political declaration on future relations will be attached to the Brexit divorce agreement between Britain and the EU, which chief EU Brexit negotiator Michel Barnier wants in place by November at the latest.
Any actual trade deal will have to wait until after Britain leaves on March 29, 2019.
Britain and the EU are meanwhile still trying to nail down the wording of the withdrawal deal, amid disagreements over the Irish border, and to finalise agreement on a post-Brexit transition period of around two years.