The study of European integration has traditionally focused on organizational growth: the deepening and widening of the European Union (EU). By contrast, this article analyzes organizational differentiation, a process in which states refuse, or are being refused, full integration but find value in establishing in-between grades of membership. It describes how the EU’s system of graded membership has developed, and it explains the positioning of states in this system. The core countries of the EU set a standard of good governance. The closer European countries are to this standard, the closer their membership grade is to the core. Some countries fall short of this standard and are refused further integration by the core: their membership grade increases with better governance. Other countries refuse further integration because they outperform the standards of the core countries: their membership grade decreases as governance improves. These conjectures are corroborated in a panel analysis of European countries.
