"We will have to address the issue why virtually all other European countries allow for the use of their military to back up the police on clearly defined legal terms and we don't," Schäuble told the daily Süddeutsche Zeitung.
"This won't stand in the long run. We have to create the legal foundations to change this," the conservative politician said.
The comments come in the wake of New Year's Eve attacks on women in the western city of Cologne that have left the country reeling.
"The people are expecting the state ... to provide security," Schäuble said in regards to the attacks, which included sexual assaults and theft.
"It could happen that we have insufficient national and regional police capacity. Any other country would use its soldiers in such a situation."
The finance minister has been campaigning for some time to allow the use of military personnel to back up the police, for instance in the case of terrorist attacks.