Angela Merkel has backed key planks of
Emmanuel Macron’s vision for an ever-closer
European Union for the first time, including a joint EU army and financial rescue fund.
In an interview with German paper Frankfurter Allgemeine Sonntagszeitung she said she was in favour of Mr Macron’s plans for a combined military force.
And Mrs Merkel supported the idea of turning the euro zone's ESM rescue fund into a European Monetary Fund (EMF) with powers to give members hit by sovereign debt troubles short-term credit lines.
The French leader wants a future EMF to act as a buffer in any future financial crises in the bloc, which was nearly torn apart in a debt crisis in 2009.
Mrs Merkel, who has faced criticism for not responding quickly and clearly to Macron's proposals made in September, said the bailout fund, know as the European Stability Mechanism (ESM), was not sufficient to shield the euro zone from crisis.
The EMF would complement other measures to strengthen the euro, including a banking and capital markets union, she said.
Germany has been demanding clarity on parameters for reducing risks in the banking sector before progress can be made toward completing a banking union through a deposit insurance scheme. The German Chancellor did not say if her concerns had been addressed.
Mrs Merkel told the paper: ”If the whole euro zone is in danger, the EMF must be able to grant long-term credit in order to help countries.
”Such loans would be spread over 30 years and be conditioned on sweeping structural reforms."
She added: "In addition I can imagine the possibility of a credit line that is short-term, five years for example.
“As such, we would be able to take under our wing countries that get into difficulties because of extraordinary circumstances."
A French government source said, however, that more work still needed to be done for an "ambitious agreement on the monetary union".
Mrs Merkel's comments were welcomed by the Social Democrats (SPD), junior coalition partners of her conservative bloc in a right-left coalition that took power earlier this year after an election in September.
"This is very pleasing," SPD leader Andrea Nahles told the ARD public broadcaster. "Those are totally new notes from Mrs Merkel."
The SPD have been critical of the conservatives' focus on austerity in the euro zone and had pressed Merkel to engage more actively with Macron on his reform proposals.
Mrs Merkel also said a future EMF would be organised on an intergovernmental basis and national parliaments of member countries would have oversight.
Politicians from Mrs Merkel's conservative bloc have been cold to Macron's proposal, saying they are wary that his call for more solidarity could see German taxpayers' money used to fund profligate member states.
The chancellor also said she backed an investment budget for the euro zone, which would be in the low two-digit billions of euros that would be introduced step by step and evaluated over time to address structural weaknesses of member states.
In another nod to Mr Macron, the German leader said she had a "positive view" of his joint European military intervention force.
"In the future we will have to react to the challenges that we are faced with," she said.