When they allow a foreign currency to become the de-facto medium of exchange in a nation, the government is basically admitting that it's lost the ability to issue currency and manage its own economy. The loss of economic control involved is so extreme that you'd only do it if you had essentially no other options left - the government is close to failure.

Not necessarily. Government can delegate things up or down - the Euro is not an effect of Germany, the UK or France admitting economic defeat but a realization that a shared economy can benefit all.

Yes, but that's very different - the Eurozone countries are not allowing another nation's currency to become their defacto currency, they're creating a pooled economy where they all still have a voice in the management of the common currency. (And it's still causing a ton of problems, when you consider what's happened in Spain, Italy and Greece.)

It's radically different from allowing your defacto currency to be one managed by another country, particuarly one that has no common economic interest with yours.

There's an exception to that: most European microstates adopted the Euro but aren't part of the Eurozone (nor the EU) and have no power in decisions made about it. Of course I concede that microstates have unique properties that break away from most considerations that are applicable to "typical" sovereign nations but it's not as clear-cut as you describe.

I'd argue this isn't inconsistent; these states are so small they effectively have ceded control of their economy, as well as their national defense, to the larger European community. Kosovo and Montenegro, for example, previously used the German Mark. This seems pretty close to an admission that for whatever reason (scale, stability) they're not able to issue their own currency in a credible manner.

Good point, what about the Euro?

See my other comment, but TLDR it's not a foreign currency if you're a Eurozone country.

Does it really change that much though? I suppose they would not be able to control inflation, but taxes and tariffs would remain the same. It's not a total loss of control.