Merkel's partners in the outgoing government, the center-left Social Democrats, initially refused to consider a repeat but said Friday they're open to holding talks.
Schulz had previously ruled out entering into another "grand coalition" with Merkel after his party suffered its worst ever result in the federal elections in September. "The question on the table is which kind of contribution the SPD can make for the country", Hubertus Heil, the party's secretary general, told reporters in Berlin.
Several European leaders have emphasised the importance of getting a stable German government in place quickly so the bloc can discuss its future, including Brexit and proposals by French President Emmanuel Macron on euro zone reforms.
Mrs Merkel's change of mind comes as a recent poll revealed almost two-thirds of Germans would back another general election.
The youth wing of Merkel's conservatives raised pressure on the parties to get a deal done by Christmas.
The CDU leader also said talks with the Social Democratic Party (SPD) would have to be conducted on the basis of mutual respect, and the compromise is part of it.
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The head of the group told the paper the conservatives should pursue a minority government if they fail to agree a deal with the SPD.
Germany or allow a minority government, or will arrange new elections.
Even before any talks get under way, the two blocs have started to outline their policy priorities.
"We worked well together", she said, adding under the grand coalition, Germany enjoyed the strongest labor market for decades, a balanced budget and pensioners and families had benefited, she argued. The right of the "Alternative for Germany" called on Merkel to resign.
A majority government would be possible under the so-called Grand Coalition, if CDU/CSU joined their 246 seats with the SPD's 193. "There shouldn't be a grand coalition at any price".