This paper is an analysis of the policy innovations of the European Union's Water Framework Directive and their relationship to a range of economic and geographical interests. It follows a previous paper describing the process of the making of the WFD in relation to the new EU co-decision process. This paper argues that the innovative aspects of the policy reflect a context in which the broader governance arrangements for water management in Europe are shifting in dramatic ways. The paper identifies the aspects of the WFD that are innovative by comparing it with previous European directives related to water management legislation. The paper then describes the state of Europe's freshwater resources as a basis for understanding the regional geography of interests in the policy-making process and examines the contrasting interests of state, market and civil society institutions and their impact on the final draft. The paper ends by bringing the history of the WFD up to date by looking at the initial responses of the key actors to the final WFD and at recent developments in relation to implementation. © 2003 John Wiley and Sons, Ltd and ERP Environment.