This chapter applies the economic analysis of law to the harmonization of private law in Europe. The economic starting points following from the economics of federalism are explained and the question is asked to what extent these criteria can lead to arguments in favour of centralization. Attention is paid to a variety of arguments such as cross-border externalities, the race-to-the-bottom and harmonization of marketing conditions. It is also explained to what extent these arguments were de facto used in Europe to justify harmonization of private law. To the extent that private law harmonization in Europe in some cases seems to go further than needed from an economic perspective, the question is asked what can be the explanation for the particular deviation. Interest group analysis is used to provide such an explanation.