The EU's top official dealing with Ankara has told Reuters that Turkey had disqualified itself from joining the bloc due to Erdogan's crackdown on dissidents, his "Nazi" jibes at Germany and a referendum that granted him sweeping new powers.
However, in an interview published in the Berliner Zeitung, Merkel said that Turkey was "an important partner in the fight against Islamist terror" and it was in the EU's and NATO's interests to have good relations with Ankara, Reuters reported.
"You should not just push away such a partner, even in view of negative developments that we must address," she said.
Asked about EU membership talks, Merkel was more cagey, although she reiterated that Turkey would cross a red line with the EU if it were to reintroduce the death penalty.
"We in Europe must jointly discuss what sort of future relationship we want with Turkey," she said.
Many in Merkel's conservative Christian Democrats (CDU) are skeptical about Turkey joining the bloc but Merkel has long argued that it is important to talk to Ankara and no decisions on actual membership are close.
She also rejected calls from some conservative allies to tighten up the rules on dual citizenship, which affect many of the 3 million people with Turkish roots living in Germany, an issue in the run-up to a Sept. 24 parliamentary election.
"Dual citizenship will not be an election campaign issue like it was in 1999," Merkel told the Koelner Stadt Anzieger in an interview, referring to a debate before Germany changed the rules in 2000 which made it easier to get dual citizenship.
Merkel's government has for the last decade talked about the need for greater integration of Germany Turkish community. The arrival of more than 1 million migrants in the last two years had intensified the debate.