SPD chief Martin Schulz said: “Today we have completed the consultations in the field of Europe.”
The agreement included: “More investment, an investment budget for the euro zone and an end of forced austerity.”
Negotiations for the Christian Democratic Union (CDU) and SPD have been locked in talks for weeks after Germany’s September election saw both parties suffer major losses.
The parties missed a self-imposed Sunday deadline to clinch a deal on renewing the coalition that has governed Europe’s largest economy since 2013.
The Rheinische Post newspaper, citing an internal SPD schedule, reported Angela Merkel, the leader of her Bavarian allies Horst Seehofer and Mr Schulz wanted to present a final coalition agreement on Tuesday.
But Alexander Dobrindt of the Bavarian Christian Social Union (CSU) said: “The hurdles are still big.”
As well as Europe, the parties further agreed to seek fairer corporate taxation in Europe, including for Internet giants like Google, Apple, Facebook and Amazon.
Mr Schulz made no specific mention in his message, however, of any plans for the European Stability Mechanism (ESM) to become a European Monetary Fund, as was envisaged in a coalition blueprint agreed on Jan. 12 after exploratory talks.
The SPD made reform of the European Union a priority in campaigning for last September’s federal election, pledging in its manifesto to work for “a better and fairer Europe”.
The message failed to resonate with voters, however, and the SPD slumped to its worst post-war election result.
Now, the party is trying to extract concessions on domestic policy that could win over sceptics among its 443,000 members, who get the final say on whether to move ahead with another tie-up with the conservatives.
Mrs Merkel’s failure to cobble together a new government more than four months after the election has raised concerns among investors and partner countries at a time when Europe is facing multiple challenges – including the need for euro zone reform and Britain’s looming departure from the EU.
Germany could face a new election or an unprecedented minority government if SPD members reject a coalition deal.