The two countries have been partial partners for years, but Angela Merkel is now putting Emmanuel Macron's plans for European Union reform at the center of her coalition talks with the social-democrat SPD.
The hope was to form a new government "before Easter", which falls on April 1, said the CSU's Seehofer.
"We have, in what feels like a long time since the election, seen that the world will not wait for us", Merkel said.
Sources said both parties had also agreed that the share of renewable energy in Germany's electricity consumption should rise to 65 percent by 2030 from roughly a third previous year.
In that respect, Germany was falling behind countries such as the USA, the United Kingdom and France, which all announced a reduction in tax for companies, said Eric Schweitzer, president the German industry and commerce chamber (Deutsche Industrie- und Handelskammer).
Participants have described the negotiations as "good", but SPD leaders need to convince their party members as they are offering them a vote on January 21 on whether to proceed.
The three parties also agreed on the strengthening of the European Union, especially more money flowing from Germany to Brussels.
Merkel will be meeting in a series of talks with SPD leader Martin Schulz until Thursday.
In the tough talks, all sides have been under pressure to deliver some of their parties' signature policies.
A commitment to "sustainably strengthen and reform the euro zone" in close partnership with France does give Merkel scope to secure her legacy as a guardian of the European project.More news: Nifty, Sensex Post Sixth Straight Weekly Gain
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Until now the CDU/CSU has opposed key SPD proposals: to raise the top tax rate, merge private and public healthcare, and reinstate provisions for some refugees to bring over their families.
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.
Roughly in line with a core CSU demand, they agreed that "the number of new arrivals... should not exceed the range of 180,000 to 220,000 per year".
However that will likely depend on whether she can build on the policy document agreed on Friday over the coming months and forges what would be her third "grand coalition" with the SPD.
Scepticism is high after the SPD scored a humiliating 20.5-percent result in the September ballot, its worst of the post-war era.
The party's leaders are all too familiar with each other.
The all-night session confirmed the doubts of leading SPD opponents to another grand coalition, who favour rebuilding their party in opposition.
"Although I have to say, with the the exception of a small group of people around the president - and the president himself - the rest of Washington seems to by trying desperately to maintain relations with Europe and Germany on an even keel", he said. "That's why I think we have a good chance", said Kuehnert.
Another coalition with the SPD therefore remains the only feasible option open to the chancellor, aside from the never-before-used option of a minority government.
Angela Merkel is heading into the final day of make-or-break negotiations to determine her future as Germany's leader.