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Chancellor Angela Merkel's conservatives and the centre-left Social Democrats took a big step on Friday toward forming a new German government, sealing a preliminary agreement in which they vowed to strengthen the European Union and keep a lid on the number of migrants entering the country.

The terms of the deal are more favourable to the European project than previous attempts for a German coalition government did at the end of past year, Macron said, adding that he was happy to find in the deal echoes of his own proposals.

Speaking at a joint press conference on Friday morning with Schulz, the leader of the center-left Social Democratic Party, Merkel hailed the deal as a "new start for Germany".

Scepticism is high after the SPD scored a humiliating result in September, its worst of the post-war era.

The coalition blueprint document commits: "in close partnership with France", to "sustainably strengthen and reform the eurozone so that the euro can better withstand global crises".

Mrs Merkel, who has played a central role in tackling crises over the euro and refugees, addressed journalists after talks that had run through the night.

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In a 28-page policy document agreed after all-night talks between the parties, they also backed the idea of turning the European stability mechanism (ESM) bailout initiative into a full-blown European monetary fund that would be placed under parliamentary control and anchored in EU law.

The three parties also agreed on the strengthening of the European Union, especially more money flowing from Germany to Brussels. "This is our common goal".

"The SPD got its way in many areas", senior SPD lawmaker Hubertus Heil told public broadcaster RBB in what is likely to be the first of many such entreaties to rank-and-file members in the coming week.

The hope was to form a new government "before Easter", which falls on April 1, said the CSU's Seehofer.

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As Europe's largest economy and preeminent power broker, Germany is crucial to the region's fortunes.

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Macron was elected last May on a promise to overhaul the European Union, shaken by almost a decade of financial turmoil, the refugee crisis of 2015 and Britain's decision, a year later, to leave the bloc.

Macron has called for a eurozone budget to help the bloc cope with economic shocks.

Four months on, Germany has given a guarded nod of agreement to euro zone reform proposals from French president Emmanuel Macron.

"The negotiations were long, tough, exciting and turbulent". The dominance of the SPD and the conservatives long ensured smooth government transition.

Seehofer's CSU, which has taken a hard line on migration, has sought to reinforce its law-and-order profile in the face of a challenge from the nationalist Alternative for Germany party, which entered parliament for the first time in September.

The Chancellor was eager to avoid any repeat elections or attempt at a minority government.

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Dr Merkel's conservatives had said they want to have a government in place by the end of March.