British Prime Minister David Cameron triggered dismay in many European capitals last week with his call for radical reform of the EU and his promise of an "in-out" referendum on Britain's membership by the end of 2017, provided he wins a second term.
Germany, Europe's largest economy, is keen to keep a kindred advocate of free trade and open markets inside the EU and has been more measured in its criticism while making clear there are limits to how far it can go in accommodating British concerns.
"It would be entirely wrong to respond to Prime Minister Cameron's overture with a kneejerk rejection," said Alexander Dobrindt, general secretary of the Christian Social Union (CSU), Bavarian sister party of Merkel's Christian Democrats (CDU).
"Whoever condemns wholesale Cameron's idea for a national referendum on Europe fans distrust towards Europe, as if Europe must hide away from people," he told weekly Spiegel magazine.
Bavaria's Economy Minister Martin Zeil, of the liberal Free Democrats (FDP), junior partner in Merkel's coalition, also defended Cameron's speech, especially his call for measures to improve Europe's competitiveness.
Both the CSU and the FDP have become more critical of the European Union during the eurozone debt crisis amid concerns the currency area may turn into a 'transfer union' whereby richer countries such as Germany have to keep bailing out poorer neighbours.
But Dobrindt also signalled the limits of German patience.
"It is clear that in an optimal Europe there can be no place for special rights for individual countries," he said, adding that included Britain's cherished rebate negotiated in the 1980s that reduces its contribution to the EU's central budget.
German Foreign Minister Guido Westerwelle of the FDP said in an article in the Die Welt newspaper there could be no far-reaching repatriation of EU competences to the national level as Cameron wants because it would wreck the single market.
"I fear that in so doing we would call up spirits which, like the sorcerer's apprentice in Goethe's poem, we would no longer be able to control," he wrote in a commentary which also endorsed British calls for more transparency in the EU.
Merkel, speaking in Chile during a summit of European and Latin American leaders, repeated her view that London and its European partners must seek a mutually acceptable compromise.
Merkel said she told Latin American leaders quizzing her about a possible British exit: "We, insofar as we represent here the whole EU, say quite unanimously that we wish Britain to stay in the EU."
