UPDATE 2-Germany to Britain: No talks on future EU ties until Brexit terms clear
* Merkel says negotiations won't be easy for either side
* German industry wants "maximum damage limitation" (Adds Merkel quotes, background)
By Noah Barkin and Madeline Chambers
BERLIN, March 29 Germany's Angela Merkel made clear on Wednesday that there could be no negotiations on Britain's future ties with the European Union until the terms of Brexit were finalised.
Speaking hours after British Prime Minister Theresa May triggered the two-year countdown to Britain leaving the bloc, Merkel said Germany would work hard to ensure as little disruption as possible for people who have grown used to living, working and travelling seamlessly between the EU and Britain.
Merkel promised to take a "fair and constructive" approach to Brexit talks but acknowledged the complexity of the divorce after more than four decades as an EU member and began sketching out Berlin's red lines on the timetable for negotiations.
"Britain and the EU, including Germany, have become closely entwined over years of membership," Merkel said.
"In the talks we must clarify how these close ties can be untangled. We must deal with many rights and obligations that have been linked to membership. Only then, later, can we talk about our future relationship."
Officials in Europe and Britain both acknowledge that the two-year deadline for negotiating Brexit is extremely tight.
Further complicating matters is the desire on both sides to avoid a "cliff's edge" situation in which Britain exits without some sort of transitional deal on future ties.
May made clear in a 6-page Brexit letter sent to European Council President Donald Tusk that her government believed it was necessary to agree the terms of Britain's future partnership with the EU "alongside" the withdrawal.
The schedule is shaping up as one of the most contentious issues in the talks. German officials have made clear in recent months that they do not believe there is time to negotiate a bespoke transitional agreement for Britain that would come into force immediately after Brexit.
Instead, they say, any such arrangement would require Britain to retain elements of EU membership and the obligations associated with it - for example, continuing to respect freedom of movement and the authority of the European Court of Justice.
They wonder whether this would be politically feasible for May, who may feel obliged to deliver on her promise of a clean break from Europe before British elections due in 2020.
As Merkel promised to negotiate in good faith, her Foreign Minister Sigmar Gabriel acknowledged "bad feelings" about Britain's decision to leave and said the talks would not be easy for either side.
"For many it is difficult to understand, especially in these turbulent times, how anyone can believe they would be better off alone," Gabriel said.
His spokesman Martin Schaefer said persistent uncertainty would be "poison" for EU citizens, trade and investment.
"Sometimes you wonder if everyone in London has understood what consequences that has, especially for the British economy," Schaefer said.
The president of the Federation of German Industries, Dieter Kempf, called for "maximum damage limitation", and said that it would be difficult to avoid negative consequences for companies, particularly those in Britain. (Additional reporting by Joseph Nasr; Writing by Michelle Martin; Editing by Paul Carrel and Louise Ireland)