The German Chancellor has struggled to form a coalition after winning the nation’s election last year.
But now early agreements between Mrs Merkel and Martin Schulz, leader of the German Social Democrats (SPD) and former President of the European Parliament, are set to cement their partnership.
While a formal deal cannot be negotiated until the SPD’s special conference on January 21, Mrs Merkel has agreed on a slew of concessions to maintain her position as she looks to enter an historic fourth term – putting her on par with arch-Europhile Helmut Kohl and the first German Chancellor Konrad Adenaur.
She agreed to a commitment to “sustainably strengthen and reform the Eurozone” alongside France’s Emmanuel Macron, who has called for sweeping reforms.
Yesterday Mr Schulz, who has called for a United States of Europe by 2025, laid out advancing the EU as one of his key focusses.
He said: “We are determined to deploy Germany’s full economic and political power to turn Europe once again into the great project that this community of nations is.”
The two parties also agreed tough immigration rules following Mrs Merkel’s much maligned decision to open Germany’s borders during the height of the migrant crisis.
No more than 220,000 refugees will be allowed to enter the country each year under the proposals, and centralised repatriation centres will be opened to speed up requests for asylum.
Meanwhile three North African countries – Algeria, Morocco and Tunisia – will be designated as “safe” to allow for the deportation of asylum seekers when necessary.
On Friday Mr Macron encouraged Mrs Merkel to hurry to form a government as the German power vacuum threatened to stall his reforms to further integrate the Eurozone.
Speaking at a joint conference with new Austrian prime minister Sebastian Kurz, the French president congratulated the German Chancellor on her initial coalition deal, hailing the terms as good for the European Union.
Despite the “good news”, he emphasised “all of Europe, and particularly France” was impatiently waiting for Mrs Merkel to finally form her government.
Mr Macron: “This morning we had good news from the other side of the Rhine.
“I am particularly happy and satisfied that Chancellor Merkel is able to move towards the formation of a coalition government, which is awaited by all of Europe, and particularly France.”
The French president is counting on the support of the German government to push through his Eurozone reforms, which include the creation of a Euro finance minister – a position Mr Schulz backs.
Although Mrs Merkel and her CDU showed some scepticism towards the French president’s plans for further fiscal integration, her prospective coalition partners, the SPD, immediately warmed to Mr Macron’s proposals.
In the 28-page document outlining the CDU and SPD’s joint programme for government, the parties backed the idea of an “investment budget” for the single currency bloc and turning the ESM bailout mechanism into a full-blown European Monetary Fund under parliamentary control and anchored in EU law.
EU Commission president Jean-Claude Juncker also welcomed the initial coalition deal.
He said: “In terms of the substance I’m very happy with what the CDU/CSU and the SPD have agreed.
“It is a significant, positive, forward-looking contribution to European policy debate in Europe.”