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Law360 (April 21, 2020, 8:28 PM EDT) -- A €500 billion ($543 billion) pandemic fund established this month by the European Union will need at least another €500 billion to help Europe recover from the coronavirus' economic impact, a leader of the bloc's permanent bailout fund has announced.
An even greater amount may be necessary if the gross domestic product in the eurozone declines by more than 7.5%, Klaus Regling said Sunday, citing a figure given by the International Monetary Fund. Regling is the managing director of the European Stability Mechanism, or ESM. the EU's permanent bailout fund.
"I would say that for the second phase, we need at least another 500 billion from the European institutions, but it could be more," Regling told the Italian publication Corriere Della Sera. "The IMF forecasts a recession of 7.5% in the euro area, but it also says it could be even worse."
EU finance ministers in early April agreed on €500 billion in emergency funding to counter economic damage wreaked by the novel coronavirus pandemic. Under the deal, member states will be eligible for credit lines from the ESM equal to at least 2% of a country's GDP, up to €240 billion.
Regling didn't identify where the additional funds would come from, but urged the European Commission to consider various sources.
"We need to discuss new instruments with an open mind, but also use the existing institutions, because it is easier," Regling said, referring to the commission and the EU budget. "Rethinking European funds can go a long way in keeping the European Union together."
Repayment terms for loans have yet to be worked out, Regling said in the interview. The only condition is that the money be spent on the direct and indirect costs of the pandemic, he said.
There will not be special terms based on a particular EU member's economy, as there were for the 2008 bailout, he said.
"Back then, the programs for Greece, Ireland or Portugal had to be very different from each other because the problems were different," Regling said.
The European institutions had to negotiate "detailed conditionality," which differed from country to country, he said.
However, in the current situation, "we are trying to manage a common shock," Regling said. Because each country is facing the same shock, the Eurogroup — the finance ministers of the eurozone in their informal meetings — made it clear that there would be standard terms for the loan rather than ones negotiated country by country, he said.
The ESM won't place additional economic conditions on countries that accept loans, Regling said.
"The conditionality agreed at the beginning will not change during the period in which the credit line is available," he said.
According to Regling, the Eurogroup made it clear that countries' ability to get loans will depend only on how they spend the money.
One dispute that has arisen from the program is whether Eurogroup nations will be able to issue euro-backed government bonds to close budget deficits created by the pandemic response. Regling didn't take a position when asked about the dispute, but noted it would take until at least next year for funds to be raised.
Representatives of the European Stability Mechanism did not respond to requests for comment.
--Additional reporting by Joseph Boris. Editing by Neil Cohen.
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