Greece's Negative Coupon Bond

Abstract

The often-badmouthed Greek bailouts have allowed the Hellenic nation to enjoy unprecedentedly sensationally generous funding terms. In particular, Eurozone loans have become, through a glorious combination of very low nominal interest rates and large cash transfers, the equivalent of a negative interest liability. In contrast to other such heterodox debt arrangements (such as a famous security issued by Warren Buffett), Greece did not have to give up anything tangible in return for such terms. When all is said and done, and provided that the bailout program goes on, Greece would be able to enjoy an effective average negative coupon of something like -0.61% during the 2010-2016 period, on loans that mature as much as forty years into the future. Germany in contrast borrows at a much higher cost even for short-term debt. Germany is rated AAA while Greece is rated CCC. And there are still people out there who loudly claim that the bailouts ripped Greece off.

Keywords: Greece bailout, Greece debt, EFSF, ESM, negative coupon bond