In her weekly podcast, the chancellor said that the proposed network would offer protection from NSA surveillance by avoiding emails and other data being automatically passed through US-based servers.
Merkel said she planned to discuss the project with French president François Hollande in a meeting on Wednesday.
The announcement is part of a response to reports implicating that the US National Security Agency (NSA) is spying directly on the German chancellor, and to revelations of mass surveillance in Europe.
In December last year, a local German newspaper reported that the NSA had tapped into the SEA-ME-WE-4 cable, which connects Europe, North Africa, the Middle East and Asia.
