"Germany wants the United Kingdom to remain an active and constructive part of the European Union," Westerwelle said, in reaction to the British prime minister's keenly awaited speech Wednesday.
He said Germany, as the driving force behind new initiatives for greater European economic policy coordination to beat the eurozone debt turmoil, believed such reforms were in the interest of all.
"We strive to create a better Europe, the European Union becoming even stronger with overcoming the debt crisis and regaining global competitiveness," he told reporters in a statement given first in German, then in English.
"Germany wants an ambitious reform of the economic and monetary union. In such decisive issues as the future of the common currency, we do not need less but more integration."
But addressing British fears, he said Berlin was not calling for a sacrifice of all national sovereignty. However he insisted EU membership was an all-or-nothing proposition.
"We share the vision of a better Europe. We need a new commitment to the principle of subsidiarity. Not all and everything must be decided in Brussels and by Brussels," he said.
"We do indeed differentiate but cherry-picking is not an option. We share a common destiny in challenging times of globalisation. And in challenging times of globalisation, we as Europeans, we are all in the same boat."
But Chancellor Angela Merkel said on Wednesday that Germany was ready to discuss Britain's "wishes" on the EU after Cameron announced his intention to hold a referendum.
Merkel said that intensive talks would be held with Britain about its ideas but that every member of the European Union had their own interests and Europe meant always having to find a "fair compromise".
"Europe also always means that you have to find fair compromises," she told a joint press conference with visiting African Union President Thomas Boni Yayi, who is also the president of Benin.
"In this context, we are of course ready also to talk about British wishes but one must keep in mind that other countries also have other wishes and we must in the end always find a compromise," she said. "Therefore we will speak very intensively with Britain about its ideas."