There was growing optimism Wednesday that a deal on EU reforms demanded by Britain is within reach, although diplomats warned that the bloc's leaders would have to overcome several unresolved issues at this week's summit.

British Prime Minister David Cameron has laid out a series of reforms that will allow him to campaign for his country to stay in the European Union in an upcoming referendum on membership.

Fears are rife that Britons might vote to leave the 28-country bloc, destabilizing it politically and economically - and at worst starting to tear it apart.

It is in Germany's "national interest" to avoid a Brexit, German Chancellor Angela Merkel told her parliament on Wednesday, using the word coined to describe Britain's departure from the EU.

"An eventual exit of the United Kingdom from the European Union would be a tragic loss for the United Kingdom" but also for all Europeans, Italian Prime Minister Matteo Renzi added in Rome.

In a bid to prevent this, EU President Donald Tusk has negotiated a detailed reform proposal with London, addressing concerns raised over sovereignty, social security payments, economic governance and competitiveness.

But this now needs the approval of the other 27 EU member states. Top officials have engaged in a diplomatic offensive to win over the bloc's capitals, many of whom initially expressed concern about the concessions being offered to London.

"Is a deal possible? We believe and hope so," French Prime Minister Manuel Valls said Wednesday, adding that it would be a "shock" if Britain left the EU.

"A deal is very doable" at this week's summit, one EU diplomat said on condition of anonymity. "We should be able to get an agreement," noted another. However, they predicted lengthy negotiations over details of the final text.

The main unresolved issues relate to a proposed mechanism for non-eurozone countries to raise concerns about initiatives taken by the currency bloc; details of a scheme limiting social benefits for EU workers; and a British exemption to the EU's stated goal of "ever closer union," sources in Brussels said Thursday.

The negotiations are expected to be particularly sensitive as the outcome will be legally binding. A team of lawyers will be at hand to advise the leaders, a senior EU source said on condition of anonymity.

In the case of a breakthrough in Brussels, Cameron is due to hold a cabinet meeting on Friday at which observers expect him to announce the date of the referendum.

Speculation is rife that Cameron will schedule the vote for June 23, although he could hold it any time before the end of 2017.

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