Angela Merkel has hinted that the EU may be willing to offer Britain a post-Brexit trade deal that allows some limits on free movement in what could be a key concession.
The bloc has always maintained that the UK cannot access tariff-free trade without also sighing up to the EU's three other key founding principles, including freedom of movement between member states.
However today, German Chancellor Mrs Merkel said that she was willing to discuss the details of that freedom more closely in the first sign that the EU may offer some compromise over the issue.
"Free movement applies to me in the sense that the employee himself earns the money he needs for himself and his family in the other member state," she said.
She highlighted the contentious issues of benefits rights as one area where Europe may be willing to bend.
If a person arrives in Germany from eastern Europe and works for a short time but gains the right to life-long benefits "then I see a question about which we must talk again," she told a meeting of Germany's BDA employers association.
Her comments will be welcomed by Theresa May, who has insisted that the UK does not face a "binary choice" between curbing immigration and getting a good trade agreement.
However Mrs Merkel insisted that the UK could not simply get a waiver if it wishes to benefit from a trade deal "because everyone else will then want these exceptions".
"In my firm view,we cannot wobble on the basic principle of free movement of people," she added.
The potential breakthrough came as Canada said that it expected the UK to sign up to its landmark CETA trade deal with the EU.
"Our expectation is that Britain will ratify the CETA deal and be part of that deal with Canada," Finance Minister Bill Morneau told the BBC.
The hard-won deal, which has yet to be formally signed off, was seven years in the making and marks the first time that the EU has agreed to open free trade with an outside state.
If the UK could simply adopt many of the same provisions in its own post-Brexit arrangement then it could smooth what threatens to be an enormously drawn-out and complex process of untangling thousands of rules and regulations.
Theresa May has said that she wants to formally trigger the start of Britain's exit from the EU next March, and begin thrashing out its own deal with the bloc.
A leaked memo for the Cabinet Office from external accountancy firm Deloitte, accused Theresa May's government of being unprepared for the UK to leave the EU.
However, ministers have disowned the memo, with the Prime Minister's spokeswoman saying she "wholeheartedly" disputes the claims.