All four major unions are contesting a reform which is the biggest since nationalization of the railways in 1937 and seen as a test of President Emmanuel Macron's determination to pursue a far broader raft of economic and social reforms during a term that runs to 2022.
But Merkel's conservative CDU party pushed back on Monday against plans for deeper eurozone integration, including a separate eurozone budget and the expansion of the EU's bailout fund.
The French leader said there must be a "proper critical debate" on Europe before the next EP elections, scheduled for the spring of 2019.
"We are seeing the emergence of authoritarian powers with a clear strategy that seeks to call into question the multinational system where Europe takes its place", Macron said.
Macron said he was concerned by the growing sense of "doubt" in several European countries in the wake of the shock 2016 Brexit vote, which he said was creating divisions in the EU.
Loekke Rasmussen wrote on Twitter on Tuesday that "we need Europe to work for the citizens - not the other way around".
"I propose creating a European programme that directly financially supports local communities that welcome and integrate refugees", Macron said.
Macron added: "I don't want a Balkans that turns toward Turkey or Russian Federation, but I don't want a Europe that, functioning with difficulty at 28 and tomorrow as 27, would decide that we can continue to gallop off, to be tomorrow 30 or 32, with the same rules".
European Parliament President Antonio Tajani also attended the lunch meeting and, according to Farage, introduced him to Macron as Parliament's "enfant bad".
Macron said that France was ready to increase its contribution to the EU's first post-Brexit multi-year budget, which begins in 2020.
He said: "Faced with authoritarianism, the answer is not democratic authoritarianism but the authority of democracy".
France and Germany aim to agree on proposals for European Union reforms by June.