One of the best studies of European integration in recent years. The director of the Max Planck Institute in Cologne, Germany, Scharpf shows how the European Commission and the European Court of Justice have helped free trade and capital movements ("negative integration") by extending the scope of competition law. But "positive integration" -- the adoption of common policies -- has encountered far less success, especially in social policy and taxation. States have thus lost much of their ability to solve problems, while Europe's effectiveness has not grown correspondingly. States are now finding their legitimacy questioned by citizens as they fail to tackle mass unemployment and poverty. In his investigation of possible solutions, Scharpf proposes a thorough reform of the current financing for the welfare state, especially through payroll taxes. Finally, he examines the possibilities of pan-European coordination of social policies, concluding that the European Union may not become a democratic polity but could still expand legal integration to enhance what Scharpf calls its "output legitimacy." A brilliant and concise analysis of extraordinarily complex issues.