“We are going into the consultations with a lot of vigour, but I must also say that the differences are still very, very large,” she said.
“I cannot therefore predict whether we will be able to reach an agreement this time.”
“It would be desirable, but we also have to face reality and we really need a great deal of willingness to compromise if we are to achieve something that is good for people and good for Europe in the face of the pandemic.
“That is why I expect very, very difficult negotiations.”
The special summit in Brussels will focus on the EU Commission's proposal to raise €750 billion on the financial markets, before putting the money into an economic recovery and investment programme to tackle the economic crisis in Europe.
Countries hit particularly hard by the pandemic, such as Italy and Spain, would benefit most.
Merkel has made the rescue package one of her top agenda items during her last year as chancellor. She entered the summit on her 66th birthday.
The EU economy is expected to contract by 8.3 percent in 2020 – an unprecedented recession.
EU commission president, and former German defence minister, Ursula von der Leyen, warned that people in Europe are currently afraid both of losing their jobs and contracting the virus.
She said: “The whole world is watching Europe – whether we are able to stand up together and overcome this corona-induced economic crisis.”