In any relatively free society some people will earn more than others, some will save and invest more and more wisely than others, some will be richer than others. The system only works if a way is found to use the surplus the rich generate for themselves to assist those who are not so lucky or successful. There are many ways this happens without most people noticing.
Some socialists think the only way to do this properly is to tax the excess away from the rich and give it to the poor through the tax and benefit system. A lot of this happens in all advanced democracies.
An even more important way in many countries can be through the banking system. Rich people deposit their surplus in the banks. The banks use these deposits or savings portfolios to lend money to others who need loans to grow their businesses or to meet their living and running costs.
Rich people recycle a lot of their income by spending more. This creates jobs and opportunities for others, who in turn may become rich on the back of those flows of income to them.
So it has to be with countries in a currency union. When you have a rich country like Germany, sharing a currency with a poorer country like Greece or Portugal, ways need to be found to send the surpluses from the rich to finance the poor.
One of the main problems for the Euro area is the failure of these mechanisms to work sufficiently or at all. Conversely, in longer established currency unions like the dollar or pound areas backed by single countries, there are well honed mechanisms to recycle the cash.
Most currency unions have ways of taxing the richer parts more, to send extra cash to the poorer parts. In the UK poorer areas receive large cash infusions to pay nationally established welfare payments, to fund their health, education and other public services at higher levels per head than the richer areas, to direct regional grants and loans, and to send substantial transfers through local authority finance. There is very little in comparison within the Euro area. EU regional policies transfer a small fraction of the sums transferred in mature currency unions by central state action.
Currency unions also have integrated banking systems. People in the richer areas deposit more money. People and businesses in the poorer areas may draw more out proportionately, if they meet the tests. The banks can acts a means of recycling from richer to poorer, or more accurately from surplus to deficit companies and individuals who can meet mortgage and loan requirements.
Labour mobility is a crucial element in a successful currency union. People can move from the areas with fewer jobs or with lower paid jobs, into areas with higher pay and more opportunity. Labour mobility in the Euro area is much more limited owing to language and other barriers.
The danger in many of the ideas proposed to solve the EU’s problems is that they might just encourage still more labour mobility of the talented and successful to destinations outside the EU altogether. The Germans meanwhile complain that their bank surpluses are being sent to the poorer areas via the European Central Bank. They resist any use of a common credit status to allow the poorer areas to borrow more. They block attempts to tax Germany more to pay the bills in the poorer countries. As a result there is insufficient transfer of funds to make the currency area work, and insufficient mobility of labour owing to linguistic and cultural barriers.