Constitutional design for a federal state generally focuses on things like the policy jurisdictions of federal subjects, representation in and the authority of the national legislature, the nature of federal and regional courts, and procedures for amending the national constitution. Once these matters are settled, attempts at ensuring stability typically focus on economic matters like tax policy, revenue sharing, trade policy, and regional investment. At both stages, there is an inherent conflict between federal subjects and the national government. One question therefore dominates all others: How do we achieve stable and enforceable rules that guarantee the rights of subjects and allow for the evolution of these rights, and at the same time ensure the authority of the national government?

Filippov and his colleagues argue that the key requirement for stability is the establishment of a set of incentives whereby political elites at one level find it in their self-interest to cooperate and coordinate with elites at all levels. Frey and Eichenberger extend the notion of federalism further by integrating it with genuine political competition. They define and develop the concept of Federally Overlapping and Competing Jurisdictions (FOCJ) and relate it to current developments within Europe.

In Part I, Mueller pointed the importance of institutions as the foundation upon which constitutions, as sets of rules, can function or fail to do so. Here, Forte provides a practical illustration of this insight in the context of the Maastricht excessive deficit rules of the European Union.