This is an interesting chart showing that all countries that adopted the Euro in 1999 paid the same interest rate on their bonds after 1999, the year the Euro was introduced. The spread between the different countries returned again after the Lehman Brothers bankruptcy in 2008.
At the same time many of these countries had a high government debt-to-GDP ratio at that time. A risk that wasn’t priced in the interest rate. I can’t find a graph of these government debt-to-GDP ratio’s in 1999 sadly but this was the result at the end of the second quarter of 2012.
The miss pricing of the interest rate on bonds for some European countries by the capital markets is one of the causes of the Euro crisis where we are in today.