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The discussions are part of a push towards a limited "fiscal union", after the economic crisis revealed fatal flaws in the set-up of the common currency. Those limitations have manifested themselves in the recessions that have engulfed countries such as Greece, Portugal and Ireland after the 2008 financial meltdown, while strong economies such as Germany have recovered much faster.
Until now, much of the fiscal union debate has focused on the prospects for issuing joint eurozone debt—so-called eurobonds—but that idea has been blocked by fierce opposition from Berlin and the fact that it would contravene a central element of European Union treaties.
A eurozone budget would complement stricter controls over national spending, as well as moves towards a banking union, in which lenders would be supervised by the European Central Bank and could eventually be propped by the eurozone's bailout fund.
Germany's concession gives more momentum to previous calls from French politicians for a centralised budget for the eurozone, but significant differences remain between the bloc's two largest economies. French Finance Minister Pierre Moscovici and Benoît Coeuré, the French member of the executive board of the ECB, meanwhile, have advocated giving the eurozone its own resources to fund a joint unemployment fund—a position that French officials backed in last week's talks.
Negotiations on the next EU budget, which covers all 27 EU states as well as a much wider range of areas such as farm subsidies, have dragged on amid resistance against a spending increase for the period between 2014 and 2020. Ms Merkel may also be reluctant to enter an open debate on fiscal transfers as she heads towards a general election next fall.