"Europe faces many challenges, but that of migration could become the make-or-break one for the EU," she stated, addressing the German parliament.
Merkel concluded, that 28 EU member-states needed to reach an agreement and must consider a coalition of the willing on migrant policy.
The European Union's fate depends on its ability to rise to the challenges of the migration debate, she noted.
"Either we manage it, so others in Africa believe that we are guided by values and believe in multilateralism, not unilateralism, or nobody will believe any longer in the system of values that have made us strong. That's why it's so important," she said.
The decision to open Europe’s doors to refugees in 2015 was not unilateral, "we acted to help Austria and Hungary," according to the German Chancellor.
"We must seek agreements on migration with African states as we did with Turkey," German Chancellor Angela Merkel said.
Earlier in June, European Commission President Jean-Claude Juncker called an "informal working meeting" on migration issues, with all interested EU member-states invited to participate.
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Merkel has recently faced harsh criticism by Interior Minister Horst Seehofer, the head of Bavaria's Christian Social Union (CSU), who stated that she should negotiate individual agreements by July 1 with Germany's immediate neighbors to allow Berlin to turn back refugees who have already been registered in another EU country.
The German top official's open-door migrant policy, which has led to the arrival of more than 1.6 million migrants to Germany since the start of 2015, is accused of being behind the rise of the far-right Alternative for Germany (AfD), now the main opposition party.
Eurozone Needs Reform
Addressing parliament before going to an EU leaders' summit that will consider Eurozone reform among other issues, Merkel noted that the Greek program, like others, was a huge challenge but "we can say the euro is stable, the programs are over and the countries are competitive and this was a good piece of work and a good bit of European solidarity."
"But there is still a need to reform. That is why we agreed with France to work together," she said, adding that that included developing the European Stability Fund into a kind of European monetary fund to help avoid potential crises.
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Merkel in cooperation with French President Emmanuel Macron indicated their readiness to present a common plan for Eurozone reforms at the two-day EU summit, which is due to start on June 28.
NATO is Vital to Germany's Defense Despite Tensions
"It is no secret that the transatlantic alliance is under strain at the moment, but we are convinced that the alliance remains central to our common security," Merkel said in a speech to parliament.
German Chancellor Angela Merkel said that she supported NATO Secretary General Jens Stoltenberg's Russia policy, which entails both strong deterrence and a meaningful dialogue.
"I share the position of NATO Secretary General Jens Stoltenberg that it is necessary to continue to work within the framework of our dual-track approach to Russia. We must strengthen our capabilities, but our proposal for dialogue is still in force," the chancellor told the parliament.
NATO-Russian relations have been complicated over the past years since the alliance set a sustained course for its expansion eastward. The alliance has also been stepping up its military presence in eastern Europe since 2014, using the alleged Russian involvement in the Ukrainian crisis and its general destabilizing activities as a pretext. Moscow has refuted the allegations and warned that such a policy may undermine stability in the region.
READ MORE: NATO's New Joint Air Power Strategy Threatens Moscow — Russian Lawmaker
The alliance suspended all practical and military cooperation with Russia on April 1, 2014, but kept the communication channels open through the NATO-Russia Council (NRC) at the ambassadorial level and above.
Tensions between the EU and the US have increased in the wake of Washington's decision to withdraw from the Iran nuclear deal in a move that has been criticized by Brussels, Berlin, London and Paris.
In addition to this, the ties between the NATO allies have been further complicated by a US decision to impose tariffs on steel and aluminum.