The political structure of the European Union (EU) is similar to a confederation, where many policy areas are federalised into common institutions capable of making law; the competences to control foreign policy, defence policy, or the majority of direct taxation policies are mostly reserved for the twenty-seven state governments (the Union does limit the level of variation allowed for VAT). These areas are primarily under the control of the EU's member states although a certain amount of structured co-operation and coordination takes place in these areas. For the EU to take substantial actions in these areas, all Member States must give their consent. Union laws that override State laws are more numerous than in historical confederations; however, the EU is legally restricted from making law outside its remit or where it is no more appropriate to do so at a state or local level (subsidiarity) when acting outside its exclusive competences. The principle of subsidiarity does not apply to areas of exclusive competence.
The common institutions mix the intergovernmental and supranational (similar to federal) aspects of the EU. The EU treaties declare the Union to be based on representative democracy, and direct elections take place in the European Parliament. The Parliament, together with the Council, form the legislative arm of the EU. The council is composed of state governments, thus representing the intergovernmental nature of the EU. Laws are proposed by the European Commission which is appointed by and accountable to the Parliament and Council although it has very few executive powers.
