Even if the economic fit isn’t perfect, currency unions can be held together by fiscal transfers from the richer to the poorer regions.
This is what happens in the United Kingdom, where Wales and Scotland are the recipients of English largesse.
Germany has had its own recent experience with a transfer union. Since the country’s reunification in 1990 large sums have flowed from the other Bundeslander towards east Germany.
Edward Chancellor, Financial Times, 4 November 2012

The dirty little secret of European Monetary Union is that there has never been a proper debate on the pros and cons of the single currency union within the member states.
Like so much else in regard to the EU, it was imposed from above.
Marshall Auerback June 6, 2005

There is little question that for a monetary union to operate successfully, there has to be a high degree of economic and political convergence. But this runs up against the tide of history: Pooled political sovereignty and a concomitantly more cohesive supra-national fiscal policy are far more difficult to implement in a larger currency zone with countries at disparate stages of economic development and correspondingly different political/historical traditions.

Most single-currency zones involve a central or federal government with a tax and public expenditure program of substantial size relative to national GDP and the ability to run significant deficits. A tax and public expenditure program generally involves redistribution from richer regions to poorer ones, whether as an automatic consequence of a progressive tax and social security system or as specific policy acts. The redistribution also has to be sufficiently large in scope to act as a stabilizer with negative shocks, leading to lower taxation and higher social security payments in the region that is adversely affected.

The EU’s current budget is a pittance and there is little inclination for member states to pool further fiscal resources in the current political climate. But there is a need for the development of a larger EU tax base and redistribution of tax revenue from richer regions to poorer ones in order to have a genuinely proper functioning fiscal policy at the supra-national level. This is clearly more feasible with a smaller zone of nations with common economic and political philosophies.

The dirty little secret of European Monetary Union is that there has never been a proper debate on the pros and cons of the single currency union within the member states. Like so much else in regard to the EU, it was imposed from above. Yet this is a debate that must occur because the European Monetary Union and its attendant institutions, such as the European Central Bank, ultimately cannot succeed in the absence of open, public discussion and acceptance, in lieu of bureaucratic imposition.

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