During Europe's sovereign debt crisis, interest rate spreads have been highly correlated with the share of multilateral loans that were considered senior to private markets. As both variables are potentially endogenous, we follow 2 different approaches to analyze the direction of causality. First, we use a set of instrumental variable regressions where the differences between sovereign ratings serve as instruments. Second, we analyze a new panel survey dataset on seniority and interest rate expectations. In both approaches, we find evidence for the seniority conundrum, that is, a positive impact of multilateral loans on interest rate spreads.