Federations may be multi-ethnic, or cover a large area of territory, although neither is necessarily the case. Federations are often founded on an original agreement between a number of sovereign states.
A confederation is an association of sovereign states or communities, usually created by treaty but often later adopting a common constitution. Confederations tend to be established for dealing with critical issues, such as defense, foreign affairs, foreign trade, and a common currency, with the central government being required to provide support for all members. A confederation, in modern political terms, is usually limited to a permanent union of sovereign states for common action in relation to other states.
The nature of the relationship between the entities constituting a confederation varies considerably. Likewise, the relationship between the member states and the central government, and the distribution of powers among them, is highly variable. Some looser confederations are similar to international organizations, while tighter confederations may resemble federations.a confederation is a loose alliance of states while a federation more closely binds the individual states to one another.