The former Tory leader expects the EU to stall talks while Merkel attempts to form a coalition, knowing that the longer a deal takes the more business the UK will lose.
Merkel secured a fourth term with 33 per cent of the vote, but her Christian Democratic Union party’s vote share dropped while the far-Right Alternative for Germany (AfD) rocketed into third place, entering the Bundestag for the first time with around 80 MPs.
The election result will leave the newly elected German Chancellor scrambling to make deals with smaller parties in order to form a government.
Now Mr Hague expects EU leaders to use the political situation in Germany as an excuse to delay moving ahead with Brexit talks.
Mr Hague wrote in The Telegraph: “In three weeks time, the EU heads of government will meet and will have to decide if enough progress is being made to warrant widening the negotiations into a full discussion of the future relationship and all the matters the UK needs to discuss.”
Trade is one aspect of the deal that talks have not been allowed to touch on yet, with Brussels negotiator Michel Barnier refusing to move on to the subject until a divorce bill has been settled.
And as the European Union drags its heels on talks the UK could be set to suffer, with Mr Hague predicting businesses may flee the uncertainty.
He added: “They know they have time on their side, because the longer it takes to make a breakthrough in the talks, the more international businesses will make plans to move operations out of Britain.
“So they will be tempted to delay matters further, with the probability that Angela Merkel will be mired for many weeks in coalition negotiations as an excuse.
“One or two more months, they might calculate, will screw a bit more money out of the British.”
Such a move by the EU, aimed at hurting the UK’s economy in order to strengthen their bargaining position, would fly in the face of Theresa May’s olive branch speech in Florence last Friday.
The Prime Minister’s speech outlined the “common interest” both parties have in striking a “workable agreement” with the UK set to be the EU’s biggest trading partner after Brexit.
The speech also made suggestions on issues such as EU citizens rights and saw the Prime Minister promise not to leave other countries with higher bills and to pay its full contributions.
As a negotiating ploy Mr Hague is not surprised by the potential of the EU choosing to delay talks to hurt the UK, however the former Tory leader claims such a move would be a mistake.
He added both the Brussels and the UK will benefit in the long term from a “sensible outcome” to negotiations.