The Holy Roman Empire (or HRE) was a confederation of German principalities. (You can read the real-world history at wikipedia [1].) Although it had a monarch, the monarch was elected and never wielded strong executive authority. In Europa Universalis II, the HRE is represented as a special title (Emperor of the Holy Roman Empire) that is held by the monarch of some country. The Emperor gains certain benefits which model his leadership of the Empire.
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