The common currency, with ongoing efforts to harmonize financial regulations and institutions, has significantly reduced those transaction costs. Together with lower country-specific macro risks arising from the adoption of the common currency, this reduction in transaction costs has greatly improved the breadth and efficiency of European financial markets.
If, on top of the financial uncertainties and concerns about public debt, the general public were to lose trust in the purchasing power of money, the consequences could be grave. Also, higher inflation increases distortions from taxes. It increases inflation variability and, hence, uncertainty for investors. This implies higher long-term real interest rates, as investors would want compensation for the increased uncertainty.