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Britain's Prime Minister Theresa May gives a speech in Complesso Santa Maria Novella, Florence, Italy September 22, 2017. REUTERS/Jeff J Mitchell/Pool(reuters_tickers)
By William James and Isla Binnie
FLORENCE, Italy (Reuters) - Prime Minister Theresa May set out a plan on Friday to retain full access to the EU's single market for two years after Brexit to try to reassure business and reset the tone of stalled negotiations with Brussels.
But her proposals for such a transition, for meeting Britain's financial obligations and for protecting EU citizens' rights fell short of what the EU wanted.
EU Brexit negotiator Michel Barnier praised the speech for its "constructive spirit" but asked for more detail. Another official said it had left him "even more concerned".
In a speech at a 14th-century church in Florence, Italy, May appealed directly to EU leaders to unlock the talks, which have stalled over a series of issues, including the size of the bill Britain should pay as part of its divorce settlement.
She spent much of her 30-minute speech describing the similarities between Britain and the EU, saying that if the complicated talks to unravel more than 40 years of union should fail, the only beneficiaries would be those who oppose democracy, liberalism and free trade.
Sterling fell against both the dollar <GBP=> and the euro <EURGBP=> during May's speech, weakening by more than half a cent against the U.S. currency.
Late on Friday ratings agency Moody's downgraded its assessment of Britain's creditworthiness, saying Brexit was damaging the country's medium-term growth prospects. The government said Moody's view was "outdated" and did not consider May's most recent comments.
"Clearly people, businesses and public services should only have to plan for one set of changes in the relationship between the UK and the EU," May told an audience of Italian business leaders and diplomats.
"So during the implementation period, access to one another's markets should continue on current terms, and Britain also should continue to take part in existing security measures."
Britain wants to move the talks forward and start addressing how a future relationship with the EU would work, a move May's government says is vital if they want to find agreement on the divorce bill.
But the EU has stood firm, refusing to discuss trading arrangements until "sufficient progress" is made on the first three issues - the financial settlement, the land border with EU member Ireland and the protection of expatriates' rights.
Beyond her vision for a transition, involving around two years of trading on the same terms, but no payments for access to the EU single market, May pledged to protect EU citizens' rights in Britain after Brexit, saying that decisions by the European Court of Justice would be taken into account by British courts.
On the financial settlement, she also said Britain would "honour commitments we have made during the period of our membership".
"I do not want our partners to fear that they will need to pay more or receive less over the remainder of the current budget plan as a result of our decision to leave," she said.
May has long said Britain will honour its financial obligations, but she did not mention the 20 billion euro figure reported in local media in the days running up to the speech.
She said little on Ireland, beyond noting that no one wanted a return to a "hard border" with British-ruled Northern Ireland that could reignite tensions on the island.
Barnier said her words showed "a willingness to move forward, as time is of the essence", but that they needed to be "translated into a precise negotiating position of the UK government".
But the head of the European Parliament's biggest group, the centre-right European People's Party, Manfred Weber, said May's speech had brought no more clarity. "I am even more concerned now," he added.
British opposition lawmakers were not impressed, with the Labour Party saying the government was "no clearer about what our long-term relationship with the EU will look like."
Trade union leader Frances O'Grady said the prime minister was pretending that "we can have our cake and eat it," while a business lobby, the British Chambers of Commerce, underlined its desire to "get trade talks moving".
It was never going to be an easy speech, with May struggling to appeal simultaneously to the EU, to business and to the supporters of Brexit in her own party who want to hold her to her pledge of a clean break with the bloc.
"It's clear that we're out," one senior Conservative source said, adding that he was pleased to hear May agree that no deal was better than a bad deal.
The speech comes at the start of a crucial week for Europe.
On Sunday, German voters are expected to return conservative Chancellor Angela Merkel to power but also vault eurosceptic parties into parliament, including the Alternative for Germany (AfD), whose nationalist, anti-immigrant ideas echo those of Britain's UKIP party, a driving force behind Brexit.
Two days later, French President Emmanuel Macron is expected to flesh out his ideas for a "relaunch" of the EU and euro zone, underscoring the bloc's determination to press ahead with a closer union that excludes the UK.
Britain and the EU do agree on one thing: The clock is ticking, with Barnier saying there is only a year left to find an agreement to give Britain a controlled exit.
May's ill-fated decision to have an election in June not only used up time but also sapped her authority and gave a stronger hand to pro-Brexit lawmakers who want a total break with the bloc and to reduce any divorce bill to zero.
May's top team of ministers put on a show of unity in Florence - with foreign minister Boris Johnson, one of Britain's most prominent hardline Brexit politicians and a one-time leadership contender, sitting in the front row.
"I think what was so uplifting about this speech was it was positive; it was confident about what Britain can do but also about our relations with the rest of the EU," Johnson said.
(Additional reporting by Elisabeth O'Leary, Kate Holton, Elizabeth Piper, David Milliken and Kylie MacLellan in London, and Noah Barkin in Berlin; Editing by Kevin Liffey and Cynthia Osterman)