The marathon negotiation session, which went on for almost 24 hours, was the final round in six days of preliminary talks among Merkel of the center-right Christian Democrats; Horst Seehofer of their conservative Bavarian sister party, the Christian Social Union; and Martin Schulz of the center-left Social Democrats - the three parties that have governed Germany together in a "grand coalition" since late 2013.
Early on Thursday, Schulz and Merkel said that they were going to finish talks on building a coalition.
The draft suggests keeping the number of refugees coming to Germany within the range of 180,000-220,000 per year, according to German media.
The two parties enter their final day of exploratory talks on Thursday - more than three months after a national election - before deciding whether to progress to full-blown coalition talks.
"This includes, above all, a better tax environment for innovation and investment, a new start for the financing the Energiewende, and the modernisation of the digital and the conventional infrastructure", he said. The new governing coalition still has to be approved by members of each of the three parties.
Strengthening the Franco-German relationship will be good.
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.
Political scientists agree that Germany's third grand coalition in 12 years could be a lowest common denominator government.
Merkel said at last month's European Union summit that she would develop joint positions on Europe with Macron by March.
Germany also regularly comes under criticism over its massive trade surplus, the world's largest which swelled to around €250 billion previous year.
Although Merkel is being criticized in Germany because is takes her such a long time to form a new government, the German chancellor is clearly willing to make concessions to the SPD.
She had until Friday been unsuccessful in forming a new government since the vote in September.
"I am very satisfied with the content", Juncker told a press conference in Bulgaria on Friday, describing the deal's section on the future of the European Union as a "very significant, positive, constructive, forward-looking, purposeful contribution".
The talks are not only crucial for Merkel, but also for Schulz and the leader of Merkel s Bavarian allies, Horst Seehofer, said political analyst Karl-Rudolf Korte of Duisburg-Essen University.
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.
Mujtaba Rahman of political consultancy Eurasia assigned a 35 percent probability to coalition negotiations failing and leading to an early election or a minority government. They feared of the party being further minimalized under the Union.