The Empire & The UnionThe rising tension between the Empire and the Union serves as a backdrop to the setting of Tales of Vesperia, as well as an important piece of Raven's story. The Empire, which is traditionally ruled by one emperor, originally consisted of the entire population of Terca Lumireis. There is a distinct class system that distinguishes nobles from commoners. Zaphias is the capital of the Empire and home of the Imperial Knights, who are trained soldiers with the task of protecting its people. However, many individuals who were unsatisfied by the rules and corrupt workings of the Empire threw away their rights as imperial citizens in order to live freely. These individuals formed guilds and were initially scattered and did whatever they liked—they unified only if there was a problem. The guilds eventually decided that when the Empire occupied the guild city Dahngrest, that they would unite permanently to drive back the Empire and truly be able to live by their own principles. The Union was formed as the government of Dahngrest and represented their established independence from the Empire and unity with each other.
The last emperor passed away shortly after the end of the Great War. Dein Nomos, a powerful sword that serves as proof of the imperial lineage, was taken from the castle and thus a new emperor cannot ascend to the throne. The Imperial Knights, run by Commandant Alexei, and the Council serve as the acting government for the Empire during majority of Tales of Vesperia. The Union is composed of the five "master guilds" and is headed by "the Don" AKA Don Whitehorse, its founder. Raven is a member of Altosk, the most powerful guild, and is basically the Don's right-hand man.
Due to the rift in a previously one-world government, it's not surprising that The Union and the Empire are at odds with each other. As Karol says, the Empire and the Union have "never gotten along." Their ideals are very different and rumors and stereotypes only make tensions worse. Such conflict is immediately apparent when Dahngrest is attacked by monsters and the Don denies the help of Flynn and his brigade of knights simply on principle. Flynn tries to protest because it "isn't the time" for such petty divisions, but the Don won't listen.
"Each and every one of these people left the Empire of their own free will and joined a guild! There ain't a soul in this town so spineless they'd go runnin' ta you guys fer help. These're the rules of the life we've chosen. It's up to us to make sure those rules don't get broken." — The DonDespite traditionally not getting along, Ioder, a candidate for the imperial throne, sends a letter via Flynn to the Don asking for the Union's cooperation in defeating The Blood Alliance. The Don is willing to have a united front as long as the Union is on equal standing with the Empire. Much to everyone's dismay, the letter states the Don needs to be "taken out of the picture," which causes him to then declare an all-out war with the Empire. Even though the Don is aware the letter was a fake, he tells Yuri that he had to keep up appearances in part to draw out the imposter, but also in part because many guild members would be outraged otherwise. The Imperial Knights receive a similar letter to raise tensions and both sides go to war. Though the incident is smoothed over before any casualties can take place, tensions remain high throughout the game.