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The text discusses applying the theory of optimum currency areas to the euro. Benefits of a common currency include lower inflation rates, lower interest rates, and increased trade, which applied more to smaller European economies like Portugal, Ireland, Greece, and Spain than to Germany. Germany's decision to join the euro was more political than economic. Costs of a common currency include no independent monetary policy and a reduced ability to respond to shocks. The costs are likely to be significant when sharing a currency with another country.
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