Approval in both houses of parliament is expected after the government gave in to demands by lawmakers who had pressured Chancellor Angela Merkel to act and let the financial sector contribute to the costs of the current crisis.
Germany in a surprise move earlier this week banned naked short-selling of shares in 10 leading German financial institutions and in euro government bonds as of Tuesday at midnight. Naked short selling involves the sale of an asset which isn't owned by the seller and isn't borrowed to cover the position while it is held. Some politicians have claimed the activity can be used to manipulate markets because the amount of naked short selling can dwarf sales of the underlying assets.
Ms. Merkel also promised to campaign at a Group of 20 nations level for the introduction of a financial tax, on top of the launch of a bank levy.
Deutsche Bundesbank President Axel Weber said Wednesday parliamentary approval for Germany's contribution to the EU's rescue fund is crucial for the bloc's stability.
"It's totally without alternative that we will finalize this decision this week," Mr. Weber said at a public hearing of the lower house of parliament, adding that a "fast decision is important."
The approval would come after EU finance ministers earlier this month decided to give €440 billion in state guarantees for emergency loans to be provided by a special vehicle to heavily indebted member countries, with the European Union setting up a €60 billion emergency lending fund, while the International Monetary Fund will contribute a further €250 billion.
The German government has defended the massive bailout for the euro zone because of the deteriorated state of public finances in EU member states. "The recent intensification of the crisis has led to a deterioration of financing conditions in some member states in the shortest period of time to such a degree that can't be explained with fundamental data," the draft bill said. "A further acceleration of the situation would not only risk the default of these states but also result in a serious threat to the financial stability of the monetary union as a whole."
According to its share of the European Central Bank's capital, Germany's contribution to the pool of up to €440 billion in guaranteed loans would be €123 billion, but the contribution could be increased by 20% because it's unclear how many countries would provide loans.
The countries with increasing financing problems are Portugal, Spain, Ireland and Italy.
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