The German Council of Economic Experts (GCEE) – sometimes referred to as the five wise men – called for Brexit to be put off if it could not be reversed to save the bloc from financial hardship.
In their annual report the group told Ms Merkel extending the negotiations would be “sensible”.
It follows claims from Brexiteer Jacob Rees-Mogg last month that a deal could take decades if the government do not meet their Brexit deadline of March 2019.
The report said: “Given the immense ramifications of the United Kingdom’s exit from the EU, the GCEE continues to call for preventing this scenario.
“If this is not possible, the objective of the negotiations should be to conclude a follow-up agreement that minimises the damage for both sides.
“It is, however, likely that more time will be needed to negotiate this kind of agreement than the two-year period specified in Article 50 TEU.
“As a result, the GCEE is in favour of granting a one-time extension of this period”.
They went on to claim market responses to Brexit and the risk of a no-deal scenario could put Europe in jeopardy.
They added: “There is still a risk of an uncontrolled exit and sudden adjustment reactions by economic agents.
“Conversely, the possibility of the UK staying in the EU can’t be completely excluded.”
Last month rising star of the Conservative party Jacob Rees-Mogg claimed the EU would drag the negotiations on for decades if the Government run a minute over the Brexit deadline set out in Article 50.
Speaking at a full to the rafters fringe event at the Conservative Party Conference, the MP for North East Somerset claimed there was plenty of precedent to prove the EU would drag their heels on a deal – adding the UK should strike a trade deal as soon as possible.
He said: “The history of the European Union negotiating trade deals is so long and slothful that we need to have that done before we have agreed any payment, before we’ve agreed any final deal, because if we haven’t agreed it by March 2019, it might be March 2029 before we have any agreement, or March 2039.”
He went on to slam the EU’s approach to negotiations, accusing them of acting like a crime syndicate.
He said: “If an organisation that you’re leaving decides to kneecap you as you leave, it’s usually the mafia.”