This paper provides a study of bond yield differentials among EU eurobonds issued between 1991 and 2002. Interest … differentials between bonds issued by EU countries and Germany or the USA contain risk premia which increase with the debt, deficit … spreads between EU countries and Germany/USA. The start of the European Monetary Union had significant effects on the bond …

that risk premiums incurred by central governments of EU member states respond positively to central government debts and … at work in European government bond markets supports the notion that the no-bailout clause in the EU Treaty is credible …