"Somewhere in the scale of over 5.5%, but clearly below 6%".
This raises a couple of issues - since the IMF intereste rate is 3.25%, the 2.25 (at least) mean exactly what?
- default risk ? but the default risk is probably larger the larger the interest rate set, it is also dangerously close to the value that will make the plan work or not - see the previous post by Francesco Franco in this blog.
- market power ? another origin of a high interest rate would be exercise of market power - take advantage of the weak bargaining position and lets extract rents. It seems doubtful that this is an issue in this case.
- punishment phase ? make an example out of this small country to avoid larger ones getting into the same troubles. Seems the more plausible explanation to me. But then it should be clearly stated, to avoid misinterpretations about the risk of the bailout plan.
Any competing explanations?
Any vote on which one you think is more plausible?