The introduction of the principle of mutual recognition in EU justice and home affairs co-operation has been associated with a ‘revolution' in internal security co-operation and has raised as many expectations as concerns. Whereas most discussions focus on the legal coherence of the concept in third pillar legislation and its potential tensions with procedural law and human rights standards, this article goes two steps back and questions at a more fundamental level the transferability of a principle of market integration into a core area of statehood and analyses the institutional preconditions for its implementation. Juxta- posing the different constellations of interdependence and governance modes in the economic and internal security spheres, it is argued that what functions as an instru- ment of liberalization in one sphere becomes a tool of governmentalization in the other, yet hampered by an unsettled tension between supranationality and states' prerogatives.