The veteran leader, who is battling to form a new government to salvage her political future, warned it would be a "tough day" of talks, which were expected to stretch well into the night.
She said her conservative Christian Democrats would "work constructively to find the necessary compromises but we are also aware that we need to execute the right policies for our country".
September's inconclusive elections left Merkel without a majority and struggling to find partners to govern Europe's biggest economy.
After her earlier attempt at forging a coalition with two smaller parties collapsed, she is now pinning her hopes on renewing an alliance with the centre-left Social Democrats (SPD).
He said his party wanted to ensure that the new government committed "above all to working toward renewal of the European Union".
"The negotiations are not just about a coalition, but also their careers. It would be the end for all three if this coalition does not come about," he told public broadcaster ZDF.
The parties are due to declare whether they will push on with efforts to forge a new government by around March or April.
As the clock ticks into a fourth month of political paralysis in Germany, Berlin's biggest EU partner France waded in, with its Finance Minister Bruno Le Maire on Wednesday echoing the SPD's demand for greater investment from Berlin.
Beyond fiscal and spending issues, the parties are struggling to fend off the encroaching far right, which has seized on anger over the influx of refugees and netted a record showing at the polls in September.
To halt a haemorrhage to the far right, Merkel's alliance wants a tougher stance on immigration, something that is hard to sell to the centre-left SPD.
Even if negotiators find a deal, it can still be torpedoed when SPD delegates and later rank-and-file members get to vote on whether the traditional labour party should once again govern in Merkel's shadow.
SPD vice chairman Ralf Stegner underlined the deep uncertainty about a possible deal, tweeting that "scepticism was, is and remains justified", while the party's Karl Lauterbach said the "negotiations are difficult ... in all areas".
He told Zeit Online that he would embark on a #NoGroKo national tour to press his case before a September 21 party congress.
"The mood of the party rank and file with regards to a grand coalition is still grim. That's why I think we have a good chance," he said.
The SPD's youth movement leader believes that governing for another four years under Merkel would deal a death blow to the Social Democrats, who suffered a historic low score in September's elections.
A survey published by Focus magazine found that only 30 per cent of Germans favour a return of the conservative-SPD alliance, while 34 per cent prefer new elections.
Another poll, published by public broadcaster ARD, found that only 45 per cent viewed a new GroKo positively, while 52 per cent did not.
And a third survey, for business paper Handelsblatt, showed that 56 per cent believed Merkel would not see out her four-year term.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)