Bonds cost more than the yields show

The Greek government may be celebrating the "low" interest rates with which it has tapped the international bond markets this year, but those rates - besides being the highest in the eurozone - entail an additional cost that constitutes the collateral for investors, particularly the long-term investing funds.

That collateral is the cash buffer of 15.6 billion euros that has been created by the funds borrowed from the European Stability Mechanism (ESM), and which is currently sitting in the account of the Bank of Greece without earning any interest. Instead, it is incurring interest at a rate of 1.5 percent, i.e. the cost of the ESM loan to Greece in this case. That amounts to an additional bill of 234 million euros per year for the Greek state, a sum that in could have instead been used to bankroll social benefits, or even to reduce the country's particularly high taxation.<...