European Commission Vice President Valdis Dombrovskis told reporters in Brussels that all 28 EU member states had no agreed on the short term loan of 7.16 billion euros ($7.8 billion) to Greece.
The loan, to be given through the EFSM rescue fund, will allow Greece to make a critical payment of 4.2 billion euros due Monday to the European Central Bank needed to keep the country in the euro.
The short-term loan should allow Greece to make its international debt payments for a month while negotiations are wrapped up on a new 86-billion-euro bailout package.
Those negotiations received a fillip when German lawmakers gave their approval to the talks.
Merkel, who like Greece's hard-left Prime Minister Alexis Tsipras, faced rebels in her own party ranks, argued passionately that it was the last chance to prevent “chaos” in the crisis-hit country.
In the end she won broad approval from the Bundestag, where her “grand coalition” commands an overwhelming majority, with 439 voting in favour, 119 against and 40 abstentions.
Addressing the chamber before the vote, Merkel had argued that “we would be grossly negligent, indeed acting irresponsibly, if we did not at least try this path”.
It was Merkel — leader of the EU's biggest economy and effective bailout paymaster — who spearheaded last weekend's marathon Brussels talks that brought Greece back from the brink of crashing out of the euro, at the price of Athens accepting painful reforms.
The chancellor conceded the “agreement of Monday morning was hard” but urged lawmakers to back it, calling it “a last try”.
She said the alternative would have meant “watching on as the country virtually bleeds out, people no longer getting their money, where chaos and violence could be the result”.
Equally, “bending the rules until they're worthless” was not an option, she said, arguing that for Europe this “would mean the end of a community bound by legal rules, and we wouldn't agree to that”.
That was why, she said, “we are making a last try in tough, tenacious discussions” to seal a third aid package, “despite all the setbacks of the past six months and despite all legitimate scepticism”.
The German 'Yes' vote came a day after European Central Bank chief Mario Draghi boosted a vital cash lifeline to Greece's struggling banks with 900 million euros that will allow them to open their doors for the first time in almost three weeks on Monday.
To prevent a catastrophic “Grexit”, the parliament in Athens early Thursday adopted sweeping reforms on pensions, taxes, labour laws and state asset sales that were harsher than those Greeks had rejected in a July 5 referendum.
The about-face sparked violent street protests and speculation of early elections in Greece, where the hard-left Syriza party came to power in January polls.
Merkel has been harshly criticised for forcing more austerity on Greece, using the threat of a five-year euro “time-out” that had been floated by Finance Minister Wolfgang Schäuble.
Merkel, sometimes accused of lacking empathy amid the eurozone crisis, Friday touched on the suffering of the Greek people, for which she blamed the Tsipras government.
“Imagine just for a moment what it would mean here in Germany if desperate pensioners had to queue up in front of shuttered banks to wait for their 120 euros a week,” she said, speaking on her 61st birthday.
If many commentators see Merkel as being too hard on Greece, dissenters at home complain she has been too soft, leaving German taxpayers to lend out billions they are unlikely to ever see again.
The mass-circulation Bild daily, which has long campaigned for a Grexit, demanded “politicians must show their true colours” — and 65 of Merkel's party members indeed voted 'No' or abstained.
Germany is one of several EU countries whose parliaments must sign off of any debt deal for Greece, as the legislature in Austria also did Friday.
The public mood in Germany was mixed between pro-European sentiment and anger with the Greek government. A new Forsa poll found 53 percent of respondents backed new talks, while 42 percent were against.
Schäuble — who says he personally thinks a Grexit would be best for the country — nonetheless vowed: “We will do everything in our power to make this last attempt a success.”
He reiterated however opposition to debt relief for Greece — something IMF chief Christine Lagarde on Friday again stressed would be necessary.
Lagarde, asked whether the bailout plan could work without reducing the crushing debt burden of 320 billion euros, said “the answer is fairly categoric: 'No.'”
German Left party leader Gregor Gysi recalled that post-World War II Germany benefited from a write-off of half its debt and said in parliament: “Mr Schäuble, I am sorry, but you are in the process of destroying the European idea.”