Harvard Law School

Jean Monnet Chair
Professor J.H.H. Weiler

Harvard Jean Monnet Working Paper (Symposium)

This paper is a part of contributions to the Jean Monnet Working Paper 
No.7/00, Symposium: Responses to Joschka Fischer

Tanja A. Börzel and Thomas Risse

Who is Afraid of a European Federation?
How to Constitutionalise a Multi-Level Governance System

Harvard Law School    Cambridge, MA 02138

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Without permission of the author.

© Tanja A. Börzel and Thomas Risse 2000
Harvard Law School
Cambridge, MA 02138 
USA

Tanja A. Börzel and Thomas Risse

Who is Afraid of a European Federation?
How to Constitutionalise a Multi-Level Governance System
1.	Introduction
It is about time that someone started talking about the ‘finalité politique’ of European integration. As Joschka Fischer put it, the European Union (EU) faces the ‘parallel task’ of, on the one hand, enlargement towards up to 30 members over the next decades, given the invitation to the Balkan countries and to Turkey issued at the Helsinki European Council while, on the other hand and by sheer necessity, the EU will have to undergo deep institutional changes, i.e., move further towards political integration, if its capacity for action is not to be seriously undermined through the enlargement process. How can one face this double challenge without thinking out loud about how the EU will look like at the end of this process? Thus, Fischer proposes a ‘European Federation’ composed of a ‘European Parliament and a European government which really do exercise legislative and executive power within the Federation.’ This European federation is to be based on a constitutional treaty which regulates, among others, the ‘division of sovereignty’ between the European institutions and the nation-states. Thus, he distances himself from the concept of a European super-state transcending and replacing the national democracies.

In the following, we comment on Fischer’s vision of the future European order. We applaud Fischer for striving to overcome the stylised dichotomy of the ‘Confederacy of European States’ (Staatenbund) and the ‘European Federal State’ (Bundesstaat), which has dominated the political debate about the ‘finalité politique’ of the European integration process from its very beginning and which is also reflected by the international reaction to Fischer’s speech. The question is not whether national sovereignty exclusively resides in the Member States or whether it is to be transferred to the European Union, but how to organise the division and sharing of sovereignty rights between the various levels of government. At the same time, Fischer’s suggestions for a European federation are still rather ambivalent in this respect. We argue that a further exploration of federalist concepts in a framework of multi-level governance helps us to escape such ambivalence because federalism provides principles for the territorial organisation of political power. At the same time, the use of federal principles does not require the creation of a federal state.

Yet, if we compare the current structure of the EU to the concept of ‘federation’ as used in the literature on federalism, the EU looks like and behaves like a federation, except for two major features. First, the EU lacks ‘taxing and spending’ power. Second, the Member States continue to be masters of the constitutive treaties, at least formally speaking.

This essay proceeds in three steps. First, we demonstrate the inherent ambiguity of Fischer’s vision which is undecided between a system of divided, as compared to shared, sovereignty. Second, we claim that neither the modern European nation-states nor the current European order resemble a system in which governments exercise autonomous sovereignty over people and territory. Rather, both the European states and the European Union constitute structures of ‘multi-level governance’ in which power and action capacities are shared rather than divided. Third, we argue that the theoretical tradition of federalism provides constitutional structures which can be applied to systems of multi-level governance. But there are different federalist models to construct a future European order. We comment on the German and American models and discuss ways in which these can be applied to a European federation. 
2.	Between Divided and Shared Sovereignty: Fischer’s
‘European Federation’
Fischer’s speech on the future European political order is ambiguous with regard to the division of formal sovereignty between the European level and that of the Member States. His subsequent comments have not clarified the matter further. It is not surprising then that his ideas met with the usual criticism, from both those in favour and those rejecting the notion of a European federation (mis-) understood as a European supranational state. These interpretations partly follow from the ambiguities in the speech itself. On the one hand, Fischer defined the European federation as ‘nothing less than a European Parliament and a European government which really do exercise legislative and executive power within the Federation’ (p. 9). On the other hand, he talked about a ‘division of sovereignty’ between Europe and the nation-states (p. 10) and of the need to take the nation-states along into such a federation (p. 9). In this context, he rejected the idea of a ‘European federal state’ (europäischer Bundesstaat) ‘replacing the old nation-states and their democracies as the new sovereign power’ which he called an ‘artificial construct which ignores the established realities in Europe’ (p. 10). In this respect, the European constitutional treaty (Verfassungsvertrag) is, then, supposed to clarify the division of sovereignty between the European institutions and the nation-states, apart from containing a bill of rights. This can only mean that Fischer’s vision of a European federation is supposedly something less than a supranational state (which would have to be based on a real constitution, and not a constitutional ‘treaty’ which implies that treaty-making powers continue to reside with the nation-states), but more than the current mixture of supranational and intergovernmental institutions in the EU (‘real legislative and executive powers’).

To operationalise his ideas about the future European parliament and government, Fischer originally proposed a two-chamber parliament with the first chamber composed of elected members who are also representatives of their national parliaments. The second chamber should be modelled according to either the US Senate or the German Bundesrat. In the European context, the Senate model would imply a truly federal institution with directly elected senators from the nation-states, while the Bundesrat model would simply mean another intergovernmental body. In his speech at the European Parliament, he essentially opted for a modified US model: the first chamber of the EP would now be composed of directly elected members (a European ‘House of Representatives’), while the European ‘senators’ would be delegated from the parliaments of the Member States.

As far as the European government is concerned, Fischer remained ambiguous: ‘Either one can decide in favour of developing the European Council into a European government, i.e., the European government is formed from the national governments, or—taking the existing Commission structure as a starting point—one can opt for the direct election of a president with far-reaching executive powers’ (p. 10). In his Strasbourg speech, he opted for a directly elected European president with the broad support of the majority of Member States.

While Fischer’s Berlin speech remained undecided between a European order in which competences are shared between the EU and its Member States and one based on a clear separation of powers, his subsequent statements appear to lean further towards a model based on the strict division of sovereignty between the European level and that of the Member States. His vision for a future European parliament now foresees no representation of the Member State governments. His proposal of a strong and directly elected European president who forms a European government which is to be confirmed by the European parliament moves further in the direction of an autonomous European political order. By implication, the current institutions representing the interests of the Member State governments, the European Council and the Council of the European Union (the council of ministers), would have to be abolished. Yet, at the same time, Fischer argues that the future European government should have the broad support of the Member States, i.e., of the national governments.

However, such a European federation looks pretty much like the United States of Europe, i.e., a European federal state, which Fischer explicitly rejected. One difference remains, though: the European federation does not have a ‘tax and spend’ capacity independent from the nation-states (unless ‘far-reaching executive powers’ means just that; but Fischer does not speak about the right of the federation to generate its own revenue). Taxation and spending powers, however, are crucial to both the effectiveness and legitimacy of a political system. Giving the European Union real legislative and executive powers remains for the most part futile without providing it with the necessary financial resources to exercise these powers effectively. Moreover, the comprehensive redistribution of social welfare at European level would foster the integration of European societies and increase the legitimacy of European institutions.

By emphasising the division, rather than the sharing, of sovereignty, Fischer still thinks in categories of the hierarchically structured nation-state with its exclusive authority over people and territory, including the legitimate monopoly over the use of (internal and external) force. No wonder then that it is difficult even to describe a future European order which is neither simply inter-governmental (i.e., sovereignty ultimately resides with the nation-states even if they decide to pool it) nor supranational and, thus, creating a sovereign state above the nation-state. Fischer’s notion of a ‘European federation’ opens up the possibility of conceptualising a constitutional concept of a hierarchically structured nation-state which is beyond traditional concepts. Had he consequently used the language of federalism as a distinct political order of divided or shared sovereignty, he would have encountered fewer misunderstandings and could have been much more precise in his proposals. 
3.	The Modern Nation State and the European Union: Systems of Multi-Level Governance with Divided and Shared Sovereignty
A language that takes a traditional concept of a nation-state as a legitimate and hierarchically organised authority over a people and a given territory with the monopoly over the use of force for granted, misses much of the current reality of modern European nation-states and of the European Union (EU) itself. At least, we need to distinguish between formal and material sovereignty, the latter being defined in degrees of the capacity for autonomous action. As to the former, sovereignty is already divided, as well as shared, to a large extent between EU authorities and the Member States. As to material sovereignty, neither the EU nor the modern welfare states enjoy the capacity for autonomous action of a 19th Century nation-state.

If we use state-centric concepts to describe the realities of modern welfare states, we encounter conceptual problems because such language implicitly maintains two distinctions which are increasingly problematic: first, the distinction between ‘state’ and ‘society,’ and, second, between the ‘domestic’ and the ‘international’ orders. As to the first distinction, it is increasingly difficult to describe the modern nation-state as one in which governing functions remain the exclusive property of state officials or governments. In comparative policy analysis, scholars increasingly talk about the ‘co-operative state,’ the ‘negotiating state,’ the ‘co-operative administration,’ or ‘policy networks’. These and other terms imply the fact that governing functions are increasingly taken over by negotiating networks encompassing governments (national, sub-national, and local) as well as private actors (firms, interest groups, etc.) and representatives of civil society (such as non-governmental organisations [NGOs]). Modern welfare states look increasingly less like hierarchical structures of legitimate authority, and more like multi-level bargaining and negotiating networks in which public actors are not obsolete, but can only fulfil their functions by co-operating with private actors and/or groups. This is even true for the quintessential European nation-state, France. The authority of the French centralised state is balanced by dense formal and informal networks linking local, regional, and central-state authorities with private actors at the various levels of governance. 

As to the second distinction between the ‘domestic’ and the ‘international’ realms, international relations scholars tend to emphasise that the traditional division between domestic and foreign affairs is obsolete in an age of globalisation and Europeanisation. While Joschka Fischer remains the German foreign minister, his colleagues in the finance and economics ministries are as much involved in external relations as he himself is. The distinction between the ‘domestic’ realm characterised by hierarchy and legitimate order, on the one hand, and the ‘international’ realm of anarchy in the absence of a world government, on the other, is less and less useful as an instrument to describe, let alone explain, the current international-domestic order. Moreover, authority in such ‘intermestic’ systems is increasingly organised along functional lines. The World Trade Organisation, for example, represents such a functional organisation regulating the international economic order.

As a result, international relations and comparative politics scholars tend to use the term ‘governance’ to describe the current reality of political life both inside and beyond the nation-states. It accounts for the finding that national states (governments) have lost their exclusive authority in the policy-making process, sharing it with international and supranational institutions on the one hand, and with private actors, such as multinational firms and representatives of civil society, on the other. The regulation authority of international institutions and accompanying networks may vary across issue-areas. Yet, material sovereignty no longer resides in the nation-state, but is divided and shared between multiple levels of governance.

The EU can then be described as a peculiar multi-level system of governance which, first, not only encompasses national governments and supranational institutions such as the Commission, the European Parliament, the European Court of Justice, and the European Central Bank, but also transnational interest groups and other private actors in governance networks of varying density and scope. Second, the EU encompasses a variety of functional regimes with different scopes and depths as far as the nature of the regulations are concerned—from EMU to the Common Agricultural Policy to environmental regulations, and the Social Protocol. Third, the EU is multi-layered in the sense that supranational, national, and sub-national authorities interact regularly in these networks. Clearly, the various treaties constituting the European Union regulate the ultimate decision authority of the various layers. But what does it mean that the Commission has the right of initiative, if not one single initiative is taken behind closed doors in Brussels, but usually only after extensive consultations with state officials in the various Member States and with interest group representatives both in Brussels and in the national capitals? What does it mean that the European Council representing the Member States negotiates changes in the EU treaties when these changes have been prepared and talked about in intergovernmental conferences, which again include national and supranational actors and consult regularly with private actors and interest groups? In other words, how much do we analytically capture the EU’s daily life if we focus exclusively on formal powers and legislative structures?

The conceptualisation of the EU as a multi-level structure of governance is widely accepted. The term has recently even entered the EU vocabulary through Commission President Romano Prodi. But how much mileage do we gain when talking about the future European political order? Does this language help us when moving from description and analysis to prescription and visions about the ‘finalité politique’ of the European order? First, we avoid the language of statehood when talking about the future of Europe and, thus, are no longer wedded to the false alternative of either a ‘Europe of nation-states’ or a European federal state. To the extent that Joschka Fischer also struggles to avoid this alternative, political scientists might then offer him different concepts to express his vision. Second, if we conceptualise both the EU and its Member States as multi-level structures of governance, our understanding of what constitutes a ‘state’ changes. It is no longer wedded to hierarchical structure of legitimate authority, but we can now speak more easily of ‘divided sovereignty’ as a central concept in Fischer’s speech. Third, however, the notion of ‘multi-level structure of governance’ which focuses on the structure of material sovereignty or action capacity, does not easily translate into a constitutional language, which should delineate who is in charge of what and when, and thus, should define structures of formal sovereignty.

The constitutional language of federalism and of federalist orders allows the dividing and sharing of sovereignty in a multi-level system of governance to be discussed. Clearly, we are not referring to the notion of federalism as described in the ‘Federalist Papers’ and which is usually associated with the creation of a European federal state, where sovereignty would be fully transferred to the European Union and the Member States would lose their state quality. Nor do we mean a federal union or a confederacy, in which sovereignty exclusively resides in the Member States and is only pooled at European level. Most versions of federalism are about divided and shared sovereignty. We will now discuss various federalist orders and how they can be used to construct a European federation.

4.	The European Union as an Emerging Federal System

Federalism fulfils two major functions: 
a)	A vertical separation of power by a division of responsibilities between two levels of government. The component units as well as the federation are usually geographically defined, although ‘societal federalism’ considers non-territorial units as components of a federation. 

b)	The integration of heterogeneous societies, while preserving their cultural and/or political autonomy (et pluribus unum). 

Both functions imply that the component units and the federation have autonomous decision powers which they can exercise independently from each other. Thus, sovereignty is shared or divided, rather than exclusively located at one level. By no means do we suggest that the EU is, or should become, a federal state. But even without the legitimate monopoly of coercive force, the European Union has acquired some fundamental federal qualities. The EU possesses sovereignty rights in a wide variety of policy sectors reaching from exclusive jurisdiction in the area of Economic and Monetary Union to far-reaching regulatory competences in sectors such as transport, energy, environment, consumer protection, health and social security and, increasingly penetrating even the core of traditional state responsibilities such as internal security (Schengen, Europol) and, albeit to a lesser extent, foreign and security policy. In most policy areas, Community law is not only superior to national law, it can also deploy direct-effect giving citizens the right to litigate against their states for violating their rights conferred to them by Community law. This is part of a second development, which has been addressed more recently. The European Union is transforming itself into a political community within a defined territory and with its own citizens, who are granted (some) fundamental rights by the European Treaties and the jurisdiction of the European Court of Justice. The European Community was conceptualised as a primarily functionally defined organisation of economic integration (Zweckverband funktionaler Integration) without fixed territorial boundaries and no direct relationship between its institutions and the European citizens. With the Treaties of Maastricht and Amsterdam, however, the Single Market has been embedded in a political union with emerging external boundaries and a proper citizenship.
Not only has the EU developed into a political community with comprehensive regulatory powers and a proper mechanism of territorially defined exclusion and inclusion (Union citizenship). It shares most features of what the literature defines as a federation: 
a)	The EU is a system of governance which has at least two orders of government, each existing under its own right and exercises direct influence on the people. 
b)	The European Treaties allocate jurisdiction and resources to these two main orders of government.
c)	There are provisions for ‘shared government’ in areas where the jurisdiction of the EU and the Member States overlap. 
d)	Community law enjoys supremacy over national law, it is the law of the land (Bundesrecht bricht Landesrecht). 
e)	European legislation is increasingly made by majority decision obliging individual Member States against their will. 
f)	At the same time, the composition and procedures of the European institutions are based not solely on principles of majoritarian representation, but guarantee the representation of ‘minority’ views. 
g)	The European Court of Justice serves as an umpire to adjudicate conflicts between the European institutions and the Member States. 
h)	Finally, the EU has a directly elected parliament (since 1979).

The EU only lacks two significant features of a federation. First, the Member States remain the ‘masters’ of the treaties, i.e., they have the exclusive power to amend or change the constitutive treaties of the EU. Second, the EU lacks a real ‘tax and spend’ capacity, in other words, there is no fiscal federalism. Otherwise, however, the European Union today looks like a federal system, it works in a similar manner to a federal system, so why not call it an emerging federation?

If we accept that the European Union has been developing into a federal system where formal and material sovereignty is divided and shared, federalism offers different alternatives to organise the distribution of power vertically, i.e., between the European Union and the Member States, and horizontally, between the executive and legislature. In principle, we can distinguish two federal models, which differ according to the distribution of competences between the two levels (shared versus divided), the representation of the states at the federal level (strong versus weak), and the fiscal system (joint versus separate).

Co-operative or intra-state federalism, of which Germany is almost a prototype, is based on a functional division of labour between the different levels of government. While the federation makes the laws, the states are responsible for implementing them. The vast majority of competences are concurrent or shared. This functional division of labour requires a strong representation of the states at the federal level, not only to grant an efficient implementation of federal policies, but also to prevent the states from being reduced to mere administrative units. The reduced capacity for the self-determination of the states is compensated by their strong participation in federal decision-making through the second chamber of the national legislature. Major policy initiatives always require the consent of the Federation and the majority of the states. The chamber of territorial representation is organised according to the Bundesrat (Federal Council) principle: the states are represented by their governments in relation to their population, with smaller states usually enjoying over-representation. Representation is not only disproportionate but also indirect. The sharing of policy competences in terms of a functional distribution of labour is backed by a sharing of tax revenue in a joint tax system, which is usually complemented by financial equalisation. Federation and states share the most important taxes. The allocation of joint tax revenue also allows for a redistribution of financial resources between states with stronger and weaker spending power. The functional and fiscal interdependence of the two levels of government not only gives rise to a co-operative federalism, interlocking politics and joint decision-making, it also favours the emergence of a policy-making system in which policies are formulated and implemented by the administrations at both levels of government. Such executive federalism is counterbalanced by a strong and vertically integrated party system, which provides for an effective representation of non-territorial (functional) interests at federal level.

Dual or inter-state federalism to which the US most closely corresponds, emphasises the institutional autonomy of the different levels of government, aiming at a clear vertical separation of powers (checks and balances). Each level should have an autonomous sphere of responsibilities. Competences are allocated according to policy sectors rather than policy functions. For each sector, one of the two levels of government has both legislative and executive powers. As a consequence, the entire machinery of government tends to be duplicated because each level should manage its own affairs autonomously. The sectoral or dual allocation of policy competences is complemented by a rather weak representation of the states at federal level. The second chamber of the federal legislature is usually organised according to the ‘Senate Principle’; the states are represented by an equal number of directly elected Senators, irrespective of their size and population. As a result, the Senate does not represent the interests of state executives, as the Bundesrat does, but the interests of the electorate or the parties within these states. The states articulate their interests through voluntary co-operation with the central state, usually in intergovernmental conferences. Consequently, there is no need for a strong, vertically integrated party system promoting functional interest representation in order to counterbalance executive dominance. The institutional autonomy of each level of government, in the final analysis, presupposes a fiscal system which grants the states sufficient resources to exercise their competences without the financial intervention of the central state. This should be ensured by a comprehensive fiscal autonomy of the states which allows them to levy their own taxes in order to have an independent source of revenue.

Which of the two models appears most appropriate for a European federation? Fischer’s own proposal, while most recently leaning toward the US model, remains, nevertheless, ambiguous as he has not made up his mind how best to preserve the strong role of the Member States in a European federation: either by granting them a strong representation at European level (German model) or by providing the Member States with a strong autonomous sphere of competences (US model). He cannot have it both ways. If Fischer wants strong representation of Member State interests at European level, he will have to opt for the German model—i.e., the executives of the Member States must be represented (the Bundesrat model)—on the one hand, and sovereignty rights will have to be shared rather than divided, on the other. The Member States would have a veto on any major decision and would also be responsible for the implementation of European policies. The comprehensive legislative powers of the European federation, albeit shared with the Member States, would have to be matched by an corresponding tax and spending capacity at European level.

A ‘senate’ type concept whereby the members of the second chamber of a future European parliament are drawn from the national parliaments (Fischer’s speech in Strasbourg) provides only a weak representation of territorial interests at European level. As the US Senate provides ample evidence, the senators tend to represent functional and constituency interests rather than territorially defined concerns. It also follows that such a model has to be built on the division of sovereignty rather than on the concept of shared sovereignty, in order to avoid a far too centralised federal state. The EU would need to dispose of legislative and executive competences, which it could exercise independently of the Member State governments. Furthermore, independent legislative and executives responsibilities would have to be accompanied by a minimum degree of taxation and spending autonomy for the European government, if the European federation is not become a mere fig-leaf, veiling a return to the Europe of the nation-states.

Which model, therefore, is the most realistic for a European federation? First, given the current distribution of power, whereby the EU and the Member States share most of the policy competences, the German model of co-operative federalism appears to be most feasible. With the exception of monetary union, the EU cannot legislate without the consent of the Member States, even in the area of its exclusive competences such as foreign trade. There are hardly any areas in which the Member States completely ceded sovereignty to European level and do not directly participate in decision-making. 

Second, the European Council and the Council of the European Union could be easily transformed into a Bundesrat-type second chamber of the European Parliament, while the Commission would become the European government (with or without a directly elected European president). One can still think about whether the members of the first parliamentary chamber should also be members of the Member State parliaments. Finally, the German and European federal systems share a consensus-oriented political culture which helps to prevent political stalemate and allows the smaller members to have a fair chance of being heard, even if their voting power is curbed, which seems to be unavoidable given the prospect of EU enlargement. 

But the European Union lacks one important feature of the German federation, which is unlikely to be replicable at European level. German co-operative federalism corresponds to a clear political preference for equal living conditions enshrined in the German Constitution and widely shared by German society. Instead of preserving and accommodating socio-economic and cultural plurality, the post-war German federal system was to provide similar living conditions for all German citizens, irrespective of the state they lived in. Due to the largely divergent spending capacity of a big state like Bavaria compared to a small city state like Bremen, legislative and fiscal competences have been increasingly transferred to federal level. The German states were compensated by means of the strong participatory rights of the Bundesrat in federal decision-making. While a further transfer of policy competences to European level does not seem completely unrealistic, the real issue is the weakness of the ‘taxation and spending’ power of the European Union. Its redistributive capacity is currently limited to 1.27% of the GDP generated by all Member States, whereas the redistributive capacity of the individual Member States amounts to approximately 50% of their GDP. In Germany, the federation receives about 40% of the overall tax revenue. Thus, a comparable spending power for the European federation would correspond to a share of about 20% of the European GDP. An almost twentyfold increase in the EU’s spending power might strengthen the legitimacy and effectiveness of European governance, but it is inconceivable that the Member States would agree to such an enormous decline in their revenues.

The US model of dual federalism, in turn, would allow for a weaker European federation. It is grounded in a deep suspicion of a strong central state and, hence, resonates with the French and British distrust of what they perceive of as an emerging European federal state and with the corresponding claims for a strict application of the principle of subsidiarity. The restriction of European jurisdiction to a clearly defined area would also leave the Member States their autonomous taxation powers. A directly elected European president and a stronger European Parliament would significantly increase the legitimacy of the European federation. Finally, as state executive interests are less dominant at European level than in the German model, a vertically integrated party system, which is still missing in the EU, is of lesser importance. Yet, the introduction of the American model of federalism may be even more demanding than the German model. 

First, divided sovereignty would require that most Europeanised legislation be dis-entangled in the areas for which the EU would have to hold exclusive competences as opposed to those in which the Member States are solely responsible. This is an almost impossible task given that the current EU is based on shared competences. It is also likely to meet with resistance from smaller Member States with low institutional and economic capacities. Second, the Member States would have to give up their strong representation at European level in order to grant the European federation independence in exercising its, by then, considerably curbed competences. The European Council and the Council of the European Union would be replaced by a senate representing the citizens rather than the governments of the individual Member States. The European Commission with a directly elected president would become a truly federal bureaucracy, which then, however, would have to be considerably strengthened (including field services in the Member States) in order to execute European policies effectively. Finally, given the strong, and with enlargement even increasing, socio-economic heterogeneity of the Member States, the European federation would need a minimum of redistributive capacity. The example of the American federation which started off with hardly any ‘taxation and spending’ capacity is rather instructive. 

The European Union seems to be stuck between a rock and a hard place. None of the two federal models are without flaws. The introduction of either requires profound institutional reforms, which are far more demanding than a redistribution of voting powers in the Council or the reallocation of national slots in the Commission, as are currently being considered in the Intergovernmental Conference. Yet, as Fischer correctly points out, such reforms are indispensable if European governance is supposed to remain effective in the light of enlargement.
5.	Conclusions
Our argument can be summarised in four points:

The current debate centring on whether or not the European Union should evolve into a federal system misses the mark. We have demonstrated that the EU already constitutes an emerging federation.

As far as material sovereignty or action capacities are concerned, the EU represents a multi-level system of governance with negotiating networks encompassing public and private actors spanning various sub-national, national, and supra-national levels. Federalism provides a constitutional language that conceptualises dividing and sharing formal sovereignty in such a multi-level system of governance.

The real issue, then, is whether the emerging European federation should be primarily based on a system of shared or divided sovereignty. We have discussed both concepts in reference to German co-operative federalism as compared to US dual federalism. The German model is based on a strong representation of the state executives at federal level and on shared competences which include a joint tax system. The US model divides competences between the two levels of governance and, thus, neither requires a strong representation of state executives at federal level nor a strong federal ‘taxation and spending’ capacity. 

While the US model might appeal to those afraid of a strong European federal state, the emerging European federation has, so far, evolved along the lines of a shared, rather than a divided, sovereignty. ‘Americanising’ the EU essentially implies the abolition of the European Council and the Council of the European Union as the representation of Member State governments at European level. Otherwise, the European federation would degenerate into a mere confederation of states—a ‘finalité politique’ which Joschka Fischer certainly does not have in mind.

On balance, we would advocate a model of shared sovereignty for the emerging European federation, because it matches the multi-level governance structure of the current European order more closely. Such a model could incorporate elements of the US system, in particular, a directly elected president of the European government which would enormously increase its legitimacy. However, and unlike the US system, the European parliament should provide for a second chamber with a strong representation of Member State governments. Such a system combines several advantages over a federal system with a strict separation of powers:

a)	It resonates with the current institutional design of the European Union which is fundamentally based on shared, rather than divided, competences as well as on a strong representation of the Member State governments at European level. The Council of the European Union, for example, could easily evolve into the second chamber of the European Parliament.
b)	Dis-entangling and dividing up the formal sovereignty between the EU level and the Member States fundamentally contradicts the multi-level governance character of the EU, where material sovereignty (or action capacities) are shared in networks across and between the various levels. It also contradicts fundamental features of the modern welfare state in Europe. 
c)	A directly elected president of the European government would legitimate and partly counterbalance the dominance of executive interests in the European federation. The president could also generate the legitimacy required for an incremental increase in the ‘taxation and spending’ capacity of the European Union as a crucial feature which would distinguish a true federation from the current EU.

One problem remains: where does the democratic legitimacy of such a European federation come from, given the heterogeneity and plurality of European societies which are unlikely to evolve into the political and social solidarity usually identified with a nation-state? Although another paper would be necessary to tackle this problem, we submit that framing the issue in terms of the presence or absence of a European demos misses the point. Instead, the real problem is the lack of a strong European party system which integrates diverse ideological, social, and political interests along functional, rather than territorial, lines. The German party system, for example, counterbalances the territorially defined executive dominance of co-operative federalism. In the absence of a vertically integrated party system, we need to rely on the legitimacy-generating functions of governance networks of public-private partnerships. These transnational networks allow for the incorporation of diverse functional interests and may constitute spaces of public deliberation provided that membership and participation are open and inclusive, rather than closed and exclusive, and that decision-making processes are transparent and subject to public scrutiny.