It is generally believed that internationalization undermines governance and democracy. This phenomenon has two dimensions. On the one hand, it is a real process which has to be understood. On the other hand, it constitutes a challenge for a number of concepts and theories in the social sciences as well as in law. These concepts and theories are often implicitly based on the idea of a sovereign nation-state. In consequence, it is difficult to conceptualize even the possibility of the transformation of the state as a result of internationalization. This general problematique is most strongly visible in the European Union which over time has developed into a political system of a new type. This system has enormous consequences on democracy and governance in its member states. The first part of the paper presents a view on the EU's political system which does not preclude the possibility of a fundamental transformation of governance and democracy in the EU by the choice of its basic concepts. The second part presents those features of the EU's political system which are most important for the future of democracy and governance. They are uneven Europeanization, permanent institutional change and new patterns of legitimation. The third part discusses two models of the European Union which might be the result of these processes. They represent two different mixtures of the institutionalization of governance and democracy. Both seem to be at least potentially stable forms of political organization but none of them can be reduced to the traditional forms of'state' and 'international organization'. The final part contains an assessment of the prospective development of the EU in the light of the central features of the EU and the system models discussed in the two previous section.