The announcement is a huge success for French president Emmanuel Macron, who proposed the sweeping European Union reforms, including the creation of a Euro finance minister. The number allowed to enter the country has been set at 220,000 per year.
Heading into their final day of talks on Thursday morning at SPD headquarters, Dr Merkel and her SPD opposite number, Martin Schulz, said they were anxious to secure a deal and end almost four months of political limbo.
Merkel has already been politically weakened by leading the CDU-CSU to its worst election result since 1949, and by her failure in November to broker a coalition deal with the Greens and the pro-business Free Democrats (FDP).
Media speculation has also begun on who might fill the key ministerial posts in a new Merkel-led coalition.
The SPD s youth wing chief Kevin Kuehnert told Zeit Online that he would embark on a national tour to press his case to opposing a new grand coalition before a September 21 party congress.
"That is why we want to further strengthen and renew German-French cooperation".
Martin Schulz, SPD leader, said on Friday that his party's negotiators agreed to recommend to the rank-and-file to back the draft coalition agreement. The chancellor said that the newly-formed government would be a "new awakening" for Europe, vowing also to come to an agreement with France over the future of the EU. "Facing the challenges of the world a strong Europe is in Germany's best interests and this is what we, the CDU and SPD have in common".
Outside the SPD headquarters, hosting the talks for a second time, protesters braved the rain and chill to hold up posters reading "Make Europe Great Again".
Early Thursday, Merkel had expressed optimism about a deal, telling reporters in Berlin that "large obstacles" remained but she meant to push for new compromises. Berlin's partners are awaiting a new government to help propel Brexit talks, euro zone reform and European Union diplomatic initiatives. If that succeeds, then the parties will proceed to full-blown coalition talks.
Jean-Claude Juncker, European Commission president, hailed the parties' plans for Europe's future as "very significant" and "positive".
"It will be a tough day but I'm going into it with a lot of energy because the people expect us to sort it out", she said ahead of negotiations.
But after winning an election with a reduced majority in September, she agreed to a soft cap on Germany's refugee intake in a bid to silence bitter squabbling within her conservative camp.
In 2013, when Merkel was seeking the current coalition with the SPD, this process took three weeks. "The coalition negotiations probably won't be easier than the exploratory talks".
Faced with the prospect of prolonging the political uncertainty of the past three months, Schulz relented on that pledge - at least for the sake of preliminary talks - but that does little to erase the growing policy differences between the two sides. They feared of the party being further minimalized under the Union. The government plans to obtain the appropriate public financing for the project from the proceeds it receives from auctioning off UMTS and 5G licenses, according to a position paper seen by RND from the parties' expert group on digitization and economics.