"If Christine Lagarde decided to be a candidate, Europe would have the best chance of occupying this position again," Schäuble told the Bild am Sonntag in an interview to be published Sunday.
He said Lagarde, widely touted as the European favourite to replace her compatriot Dominique Strauss-Kahn, now facing sexual assault charges, was "perfectly suited" for the job.
Under a long-standing arrangement between Europe and the United States, a European has always held the top IMF job while an American leads its sister institution, the World Bank.
But emerging powers China and Brazil are calling for an end to the arrangement to give an opportunity to a candidate from a developing nation. The EU has staked a claim to retain the IMF leadership to help tackle its debt crisis.
Lagarde, 55, already the first woman finance minister of a Group of Seven country, would become the first woman to head the IMF.
She is dogged by a judicial probe in France into whether she misused her authority as a minister by intervening in a banking scandal involving controversial tycoon Bernard Tapie.
German Chancellor Angela Merkel said on Thursday that given the IMF's "strong involvement" in the eurozone debt crisis, Berlin wanted to see Strauss-Kahn replaced by a European, and for there to be a swift decision on his successor.
"I am of the opinion that we should propose a European candidate ... I will name no names today but we will discuss it within the European Union," Merkel told reporters.
"Of course developing nations are within their rights in the medium term to occupy the post of either IMF head of World Bank chief," she added.
"But I think that in the current situation, with serious problems with the euro and the IMF strongly involved, there is a lot in favour of a European candidate being put forward."