Merkel spent the afternoon meeting MEPs, culminating in a two-hour discussion centred on the EU's economic troubles and the upcoming negotiations on the shape of the bloc's next long-term budget.
Merkel called for strengthening economic policy coordination and more joint fiscal policy.
Merkel warned MEPs that much remains to be done to get a handle on the eurozone crisis, arguing that members of the EU single currency must press reforms and draw a roadmap for unity. On several occasions, she quoted Jacques Delors, the long-serving Commission president and considered one of the “fathers of Europe”.
Ahead of a December EU summit to deal with the debt crisis, Merkel told lawmakers that countries must allow the European Union to police budgets when necessary if the bloc is to maintain prosperity.
"Much still has to be done to win back trust in the European Union as a whole," Merkel said. "We cannot stop halfway. We have to be creative: We have to find our own new solutions."
She also said policies need to become "more common," adding that a pan-EU supervisory body with the power to police banks to avoid risks must be effective. She said budgets across the EU must be determined with a one-for-all outlook.
"Trust in the EU needs to be re-won," Merkel said in her speech.
Merkel also brought up complicated treaty changes as one possible solution to the crisis. Europeans have to be "ambitious and demanding, and not shy away from a change to the contractual basis," she said.
Transferring sovereign powers over to the EU cannot be ruled out, Merkel said. She continued her lobbying for austerity measures that have restricted growth in the countries hardest hit, saying that "the effort is not in vain."
'I cannot imagine Europe without Britain’
Merkel insisted that the United Kingdom is an indispensable part of Europe hours before her scheduled meeting with Cameron.
"I believe you can be very happy on an island, but being alone in this world doesn't make you any happier," Merkel said after British politician Nigel Farage, leader of the anti-European UK Independence Party, urged her to tell Cameron that Britain should quit the EU.
Cameron, who wants to stay in the bloc under renegotiated terms, argues that the EU must tighten its belt at a time when the eurozone debt crisis looms large, and many countries are faced with austerity and shrinking household budgets.
Describing plans to increase the EU budget as "ludicrous", Cameron has threatened to veto any deal he thinks is not in Britain's interests and will push for a real-terms freeze.
The leaders met in London to try to iron out differences over the EU's proposed €1 trillion budget for 2014-2020 that threaten to block a deal and fuel fears that London is drifting away from the 27-nation union.
"Despite differences that we have it is very important for me that the UK and Germany work together," Merkel said before the start of her meeting with Cameron.
"We always have to do something that will stand up to public opinion back home. Not all of the expenditure that has been earmarked has been used with great efficiency ... We need to address that," she said.