She said Greece and Spain had agreed to take back migrants stopped at the Bavarian-Austrian border who were shown to have entered their countries first, a commitment she hoped would assuage Mr. Seehofer's concerns. Ms. Merkel, anxious about European Union unity, opposes such a unilateral move without agreements between Germany and its neighbors. "There's no way out of the government for us and no way we'll end (the alliance) right now".
"We think this is good because now we are getting back down to business", Nahles said after a meeting of coalition leaders in the chancellery.
A new rift in Merkel's party, the Christian Democratic Union, has left many members seeking Merkel's exit and a less liberal Germany.
In an earlier series of closed-door talks, Seehofer was also said to have muttered, twice, that he "can't work with this woman anymore", though the leaked complaint was later denied by his CSU party.
German Chancellor and leader of the Christian Democratic Union (CDU) Angela Merkel (C), the Secretary General of the Christian Democratic Union (CDU) Annegret Kramp-Karrenbauer (L) and German Agriculture minister and Deputy Chairman of the Christian Democratic Union (CDU) Julia Kloeckner look on prior to a party leadership meeting at the CDU headquarters in Berlin, on July 2, 2018.
A sharply weaker euro was an indication that the market was not very hopeful that an exit by Seehofer could be avoided‚ placing Merkel's three-month old - and carefully constructed - coalition in jeopardy.
"The CSU's unsafe ego trip is paralyzing Germany and Europe", SPD chairwoman Andrea Nahles told journalists in Berlin. Securing the consent of other European Union countries was crucial, she said, adding: "That's why I consider the deal for now as an uncovered cheque".
But he also struck a conciliatory tone, saying "there is an abundance of possibilities ... for compromises", without specifying what they were.
Before the refugee crisis of 2015, Seehofer was mainly concerned with regional pet projects tolerated by Merkel, such as rewarding mothers who raise young children at home with state benefits and charging foreign motorists for using Germany's Autobahn. In a meeting with his party leaders on Sunday night, Seehofer offered to resign from his ministerial role and party leadership, reports said.
At a CSU congress in November that year, Seehofer berated Merkel for a full 15 minutes on stage, his 1.93 metres frame towering over the ill-at-ease chancellor.
In a sign of mounting frustration, Seehofer reportedly told CSU colleagues that he "travelled especially to Berlin but the chancellor is moving zero point zero" per cent with her stance.
Under the new policy, which is still pending approval of the Social Democrats, another party in Merkel's delicate coalition, Germany would create so-called "transit centers" along the border.
All new migrants would have to be screened at the centers and determined if they are eligible to seek asylum in Germany.
"The cost of getting to this deal ended up being much higher than the benefit of the actual outcome", she said.