Membership Matters: Limits of the Functional Approach to European Institutions*

Abstract Functional, transaction‐cost approaches to international institutions depict them as passive fora for bargaining among states with autonomously derived preferences. This article probes the limits of the functional, intergovernmental account of the European Union. It suggests that EU institutions can affect political behaviour and outcomes in at least three broad ways: (1) by becoming autonomous political actors; (2) by creating options for domestic actors in their choice of allies and arenas (creating ‘multi‐level politics’); and (3) by inducing changes in domestic policies and institutions. The article provides instances of each effect in the European Union. It concludes that, in order to understand how the European Union works as well as how it has evolved, analysis must move beyond the limits of the functional, intergovernmentalist approach.