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A confederation is an association of sovereign states. Unlike a federation, a confederation has no constitution, but is created by a treaty. Therefore, a confederation can not be considered as a state. On most of the issues, such as defense or currency, the central government will be required to provide support for all members.
Sometimes confederation is erroneously used in the place of federation. Indeed, most of the confederations transforms themeselves in federations, such as Brazil and Switzerland, who is not a confederation anymore, despite its name. The United States of America have been a confederation before becoming a federation with the ratification of the US constitution.
The Confederate States of America were not a confederation but a federation.
The best examples of modern day confederations can be found in the government of the European Union.
As a verb, confederation refers to the process of (or the event of) establishing a federation or confederation. For example, in Canada the phrase "after the Confederation" generally means "after the British North America Act of 1867", which has established the Dominion of Canada.
Confederation Day is frequently a holiday in federations or confederations, equivalent to Independence Day for any entity that achieved statehood as such. This is often renamed or colloquially celebrated under a different name (e.g. in Canada Confederation Day (July 1st) was renamed Dominion Day, and later was renamed Canada Day).