The German chancellor added that her suggestion "isn't malicious" but an "obstacle" would be created to "compensate" the remaining 27 European Union member states if such a policy emerged.
Prime Minister Theresa May has outlined Britain's desire to regain full control of the number of people coming to the country from the European Union, with free movement of people no longer expected to apply.
She added: "That's not malice".
"That won't work, and then we would have to think about what obstacle we create from the European side to compensate for that".
Beyond defending the interests of Germans living in the U.K., Merkel said "we'll always keep in mind the 48 or 49 percent who didn't vote for Brexit". "It'll be very, very complicated".More news: Iran to continue missile program despite United States sanctions
The remarks emerged as the European Parliament met to discuss last month's Special European Council in which leaders of the EU 27 formally endorsed the bloc's negotiating strategy for Brexit talks, set to commence after the UK General Election.
Any agreement at the end of UK-EU negotiations will need to win the approval of the European Parliament.
He said he has never quoted the figure of 100 billion euro.
Mr. Barnier said many people regretted Britain's decision to leave, "but now we have to implement it and that decision has consequences".
"We will work with the British, calmly and without fuss", he said, "To find an agreement on the commitments which have been made".More news: Senate committee wants Comey to testify
MEPs underlined the importance of unity and trust so that, in parallel to negotiations being carried out for an "orderly withdrawal" of the United Kingdom, the reform of the Union can take place to rapidly respond to citizens' concerns and make the benefits of European integration much more visible.
"We will make our guidelines more precise when the time comes, namely when sufficient progress in the first phase is achieved", Tusk told MEPs.
"We want to conclude a deal with the United Kingdom, not against the United Kingdom", he stressed, before adding: "I would very much appreciate if on the side of the United Kingdom you could have the same spirit, to reach a deal with the European Union, not against the European Union".
Raffaele Fitto (Italy), speaking on behalf of the European Conservatives and Reformer's group, thought the negotiations "should be based on creating a relationship with the United Kingdom which allows us to review the way that the EU works and to understand why the British people thought they would be better off outside the EU than in it".
Brexit campaigner and former leader of the UK Independence Party (Ukip), Nigel Farage, attempted to hit back by criticising the EU for allegedly leaking information from the dinner meeting between UK prime minister Theresa May and European Commission president Jean-Claude Juncker.More news: North Korea could be behind ransomware attack, say experts
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