Macron hailed the news, saying it was "good news for Europe".
Congratulating the SPD for its "clear result", Merkel said using her Christian Democratic Union's Twitter account that she was looking forward to "further cooperation for the good of our country".
"France and Germany will work together on new initiatives in the coming weeks to bring the European project forward", the President's office said in a statement. However, we would caution against too much optimism on especially the latter as the coalition agreement clearly hedged its enthusiasm and is the new government is unlikely to drop traditional German red lines on increased risk sharing and fiscal rectitude'.
However, he added: 'The new government could be more important for Europe than for the domestic economy as without this agreement it would have been hard, if not impossible, to get any meaningful reform done in the coming months.
While the impasse in Berlin hasn't dented Germany's economic boom, it's held back policy making since Ms Merkel won a national election in September with her bloc's worst result since 1949.
The AfD, which would be the biggest opposition party in Germany as the SPD joins the government, vowed to go after Merkel's CDU over its "continuation of the immigration policy without imposing a limit".
"I'm happy it worked out this way", Andrea Nahles, the SPD's likely next leader, told Reuters.
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That vacuum led to the rise of the Taliban, which took power in the mid-1990s with support from Pakistan's main military intelligence agency.
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With a resumption of the "grand coalition" government now assured, the SPD's pick for finance minister will be among the most-watched decisions ahead. As part of the price for its support, the SPD will take the helm at key ministries, including the finance ministry.
However, the new "Grand Coalition" will also make the AfD the largest opposition party in the Bundestag. The radical youth wing had opposed the coalition. Months of political wrangling (don't forget Mrs Merkel tried - and failed - to form a coalition with the Green and FDP parties) have done little to inspire confidence in Germany's established parties.
In the internal referendum of the 463,000 plus SPD members, over 66 percent of ballots voted for "yes", with a high participation rate of 78.39 percent, Dietmar Nietan, head of the SPD Mandate and Counting Commission, announced at a press conference at the SPD Headquarters.
German business greeted with relief the news that Germany would get a government after its longest-ever post-election interregnum.
The SPD was forced to revisit its original plan to go into opposition after the failure of Merkel's initial attempt to form a coalition with two smaller parties.
"While the United States are starting a trade war and China is challenging our industrial leadership, we have been unnecessarily self-absorbed", engineering trade union VDMA's managing director Thilo Brodtmann said.
A crushing majority enjoyed by her conservatives and the SPD in the last coalition has been trimmed to a slim 56 percent (399 out of total 709) of seats in parliament this time round.