But to make a new government a reality, he must first persuade a party congress January 21 to agree to hold formal coalition negotiations. It must now be voted on by the SPD party conference later this month, where there is likely to be resistance from members who believe a coalition would further damage their electoral appeal.
However, while he welcomed the overall tone of the CDU-SPD deal, when asked about plans to turn the ESM bailout mechanism into a full-blown European Monetary Fund, which are included in the 28-page policy document agreed after all-night talks, Macron expressed some scepticism.
The section on Europe, entitled, A New Awakening for Europe, is the most concrete response so far from Berlin to French President Emmanuel Macron's ideas for reforming the European Union, spelled out days after the German election in September in a speech at the Sorbonne University in Paris. "I am already speaking of these years because I believe we will succeed".
Weakened by an election setback in September, Merkel turned to the left-leaning SPD to renew their grand coalition after the collapse in November of talks on a three-way coalition with the Greens and Free Democrats (FDP). That decision was popular with members.
The three coalition parties' support dropped by a cumulative total of almost 14 percentage points in the election.
European Parliament's former president Schulz, said on Friday that the SPD is "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". "We made that the basis of our work".
But both parties bled support in the September 24 election, which saw the far-right Alternative for Germany (AfD) enter the Bundestag lower house of parliament for the first time.
They plan to limit asylum-seeker arrivals to about 200,000 annually.
Pledges to spend more in poorer regions and allow up to 1,000 family members each month to join refugees already living in Germany also seemed created to placate SPD members distrustful of governing with Merkel again. He didn't secure an increase in the top income tax rate that his party proposed. On energy and climate, the parties agreed to formally stick with Germany's carbon emission reduction goals, even if experts agree it looks set to overshoot its 2020 target.
They pledged to fight tax dumping and evasion in Europe, pushing for "fair taxation of big companies" including the internet giants Google, Apple, Facebook and Amazon, and called for unspecified minimum rates for corporate tax.
Strengthen European Parliament and boost European Union's finances - Germany would be prepared to pay more into the EU budget.
Merkel now leads a caretaker government, limiting her ability to take major policy initiatives as French President Emmanuel Macron pushes an ambitious European reform agenda.
"In the seemingly long period of time since the election, we've seen that the world is not waiting for us", said Merkel.
Prime Minister Boyko Borissov of Bulgaria, which now holds the bloc's rotating presidency, said the European Union was waiting "impatiently" for Merkel to reemerge, heading a new coalition: "for the benefit of all".
At the start of the final day of exploratory talks that could lead to formal negotiations, Merkel said it would be an arduous day but she recognised that Germans expected results.
But party leaders were in a buoyant mood on Friday morning. When the agreement was announced, Kevin Kühnert, who heads the Social Democrats' influential youth wing, responded with a punning Twitter post likening the breakthrough in talks to appendicitis.