The German federal government has ratified a draft regulation to shore up the European Stability Mechanism (ESM), the European Union's new permanent bailout fund slated to take effect as of July.

Chancellor Angela Merkel approved a German contribution of 22 billion euros (29 billion U.S. dollars) in cash and loan guarantees of up to 168 billion euros to the emergency fund. The bill will now be put to vote in both houses of German parliament at the end of March.

The ESM, with a kitty of 500 billion euros (650 billion U.S. dollars), will replace the European Financial Stability Facility (EFSF) that expires at the end of 2013.

Germany has been under tremendous pressure from the international community to increase its contribution to the fund. As Europe's best-performing economy, Germany has already pumped 8.78 billion euros into the ESM this year, constituting a lion's share of the fund's 80 billion euros cash reserve.

Germany will also underwrite a guarantee of 168.3 billion euros to the ESM. It is estimated that the moves mean 190 billion euros of the German fiscal budget have been exposed to risk.

The government has been reluctant to further fund the ESM due to political and public pressure. Some experts say the EFSF's current surplus of 250 billion euros should be added to the ESM's coffers to boost its financial firepower to 750 billion euros.