The chancellor made the statement during a congress of the regional branch of the Christian Democratic Union in the federal state of Mecklenburg-Western Pomerania, according to Frankfurter Allgemeine Zeitung.
"I hope that Russia would increasingly develop ties with the European economic area, finally resulting in a common economic area from Lisbon to Vladivostok," Merkel said.
The chancellor stressed that Brussels cannot abandon its principles taking into account "Russia’s actions in Ukraine."
According to Merkel, currently Germany and France are seeking in eastern Ukraine a real ceasefire and local elections. If the election law is passed and a date is appointed this may create preconditions for granting a special status to the Donetsk and Lugansk regions of Ukraine.
In addition, Ukraine should have access to its borders with Russia.
"If this is done we can immediately remove the sanctions," Merkel said.
Initially, the idea of a united economic community stretching from Lisbon to Vladivostok was proposed by Vladimir Putin back in 2010 when he was prime minister of Russia.
He presented his vision in an article published in the German daily Suddeutsche Zeitung.
"In the future, we could even consider a free trade zone or even more advanced forms of economic integration. The result would be a unified continental market with a capacity worth trillions of euros," Putin wrote.
He also proposed closer cooperation between Russia and Europe, including in energy, manufacturing industry, and hi-tech segments.
Putin’s idea of a free trade zone across the continent later was supported by many European leaders and politicians.