By Paul Carrel

BERLIN (Reuters) - Britain should not expect to hold any "pre-negotiations" with the European Union on its exit from the bloc, Germany's deputy finance minister said, adding that London must keep its borders open if it wants to retain access to the EU's single market.

Jens Spahn, who is also a senior member of Chancellor Angela Merkel's Christian Democrats (CDU), welcomed British Prime Minister Theresa May's announcement on Sunday that by the end of March she would trigger the two-year process to leave the EU.

"First of all, it is good that we have a timetable, so that everyone knows how things will proceed. Everyone knows this will be the mother of all negotiations," Spahn told Reuters in an interview on Tuesday.

But he played down the prospect of Britain making progress on the outlines of an agreement in any negotiations before the formal exit process is triggered using Article 50 of the EU's Lisbon Treaty.

"It is good, where there is any doubt, to talk about timetables and processes," Spahn said. "But I honestly can't imagine any pre-negotiations on substance."

Anton Boerner, the head of Germany's BGA trade association, struck a similar chord, telling a news conference in Berlin: "We cannot grant any special treatment even before negotiations."

"Then we would have 27 special agreements tomorrow. Then there won't be a European Union any more," he added. "We have to negotiate really hard, we have to remain tough."

"COMPROMISES LOOK DIFFICULT"

In a speech to her Conservatives on Sunday, May said it was wrong to look at the Brexit negotiations in terms of a trade-off between Britain retaining access to the EU's internal market and being able to control immigration from the bloc.

But Spahn said the two were inextricably linked.

"Whoever wants to have access to the internal market, and to be part of the internal market, must accept the free movement of workers," he said. "They are completely connected, so compromises look difficult."

"Internal market (access) works only with free movement," he said.

Britain's decision on June 23 to leave the EU sparked turmoil in financial markets as investors tried to gauge its impact on both the world's fifth largest economy and the bloc. The pound hit a 31-year low against the dollar on Tuesday.

The country's allies fear that its exit from the EU could mark a turning point in post-Cold War international affairs that will weaken the West in relation to China and Russia, undermine efforts toward European integration and hurt global free trade.

Spahn said all partners in the Brexit negotiations should aim for a smooth transition when Britain leaves the bloc.

"We should all do everything we can for a 'soft Brexit' in the sense of there being a smooth transition," he said.

"We should have arrangements for the day after the exit on how things will proceed, and not have a 'nothing phase' - that would be difficult for both sides."

(Additional reporting by Michael Nienaber; Editing by Madeline Chambers and Mark Trevelyan)