We argue that existing estimates of the trade effects of the euro are potentially biased because they ignore the macroeconomics of a common currency, which suggests potential misalignment from lack of nominal exchange rate adjustment in the face of asymmetric shocks. We develop an “augmented” gravity model of bilateral trade which allows us i) to provide consistent estimates of the real trade cost effect of the euro, irrespective of whether trade flows have been affected by euro-induced misalignment, and ii) to test for the presence of such misalignments and to consistently estimate their quantitative importance. Our empirical results confirm the negligibly low estimates for the trade cost effect of the euro obtained by recent literature, while at the same time funding strong support for misalignment-induced trade effects. These effects are vastly different across euro-zone member countries. We translate our econometric estimates into a picture of country-specific trade effects caused by misalignment over the period from 1999 to 2007. Joint with Jan Hogrefe and Wilhelm Kohler.