During a press conference on Monday in Santiago de Compostela, Merkel described relations between Germany and Spain as "strong" and "close".
She said this was a moment of "joy" for Spain. The country should feel a "great deal of satisfaction" after various quarters of growth, she said in the press conference.
Spain's estimated growth rate was 0.6 percent for the second quarter of 2014 — the country's highest growth rate in six years, and the fourth consecutive growth rate of growth for the crisis-hit country.
The German chancellor also praised the efforts of the Spanish Government and Prime Minister Mariano Rajoy for carrying out tough reforms to deal with a difficult situation.
Referring to the German situation and the slowing growth in the second quarter, she argued this had nothing to do with the long-term evolution of the Germany economy.
Rajoy, meanwhile, responded to the decision of the French cabinet to resign on Monday by saying that the situation would soon improve.
The Spanish prime minister also said now was not the time to give up on austerity policies and that tough reforms had to be carried out. The European Union needed to continue its push towards greater fiscal union, he added.
"We must continue with policies of fiscal consolidation," Rajoy said.
"The public deficit and debt levels must be reasonable," he said before adding that the 28-nation European Union must continue to pursue economic reforms to revive the economy.
"Structural reforms are sometimes hard, they are sometimes difficult and complicated to explain but they are the ones that boost economic competitiveness and levels of well being and wealth and jobs," he said.
Merkel wished the French government all the best with its 'brave' reform programme but refused to comment on the decision of the cabinet to resign, saying it was internal issue.
The German chancellor also said on Monday she was backing Spain's economy minister, Luis de Guindos, to lead the Eurogroup forum of eurozone finance ministers.