Last week, U.K. Prime Minister Tony Blair flew to California to confer with Silicon Valley technocrats about why Europe has failed to produce any global giants like Google, Yahoo and Ebay. Blair's reconnaissance trip is part of Europe's newfound obsession with creating "European champions." What does that exactly mean? It's Eurospeak for the Old Continent's effort to understand and stand up to the baffling success of the Uncouth Nation.

The obsession for creating European champions spans across all spheres of activity, and reflects the "Us" versus "Them" mentality that has gained widespread currency in Europe. As a British newspaper recently observed: "Listening to British businessman talking about the world's biggest economy (the U.S.) can feel a little like stumbling into an anti-Vietnam rally."

The Current Champs

The first -- and best known -- such European champion is France-based Airbus. Owned jointly by French German manufacturer EADS and British defense group BAE, Airbus was founded with the explicit intention to serve as a counterweight against Boeing's virtual monopoly in global civil aviation. The European media had a field day trumpeting Airbus' successes, as it (briefly) overtook troubled Boeing in global market share. That is, until Airbus recently went into a free fall because of production problems associated with the production of the A380 Superjumbo -- the European champion's alternative to Boeing's 747.

Europe's other great champion, Paris-based Euronext -- a five country European stock and futures exchange -- recently agreed to merge with the New York Stock Exchange (NYSE) to create the first global stock exchange. After coming out publicly against the takeover by the NYSE, French President Jacque Chirac is no doubt employing his Machiavellian diplomatic skills behind the scenes to scupper the deal. The Brits are equally appalled at the prospect of a takeover of the London Stock Exchange (LSE) by Nasdaq, which has acquired a 25.1% stake in Europe's largest stock exchange. Both the British and French fear the NYSE and Nasdaq mergers as U.S. takeovers of their national exchanges to be regulated by the long arm of the S.E.C.

The "Up and Comers"...

The last year has seen a flurry of three new contenders for European champions.

Six months ago the first of thirty satellites was launched from Kazakhstan that will comprise Galileo, a global navigation system run by the European Union and the European Space Agency. Expected to be up and running by 2010, Galileo is meant to compete with the (American) Global Positioning System (GPS).

In February, the European Commission unveiled a plan for EIT -- the European Institute of Technology. This is Europe's answer to the Massachusetts Institute of Technology (MIT) in name, and Stanford and Silicon Valley in spirit. EIT is Old Europe's attempt to combine a center of academic excellence with an entrepreneurial environment that will promote start-up companies.

Finally, in April, Jacques Chirac announced that the French and German governments would invest $110 million over five years into Quaero ("I search" in Latin), an internet search engine set up to rival Google. This reflects growing French unease that after the demise of the minitel -- France's own version of the Internet scuppered long ago -- the U.S. is having too much of an influence on the Internet.

And Their Prospects...

Europeans make two economic arguments for these projects. First, the projects provide competition for what would be otherwise a U.S. monopoly. This was Airbus' great achievement in wresting the civil aircraft market from Boeing. The same applies to Galileo since the GPS system is an effective monopoly. Ditto for Google's dominance of the Internet search space.

Second, the EU argues that Europe's efforts will leapfrog the U.S. in terms of technology. GPS is only accurate to 15 feet; Galileo is accurate to three. And Google only searches texts. Quaero will search podcasts, television broadcasts and everything other audio and video the Internet now carries.

But Europe is littered with examples of failed grandiose projects. And the current ones are already foundering. Turns out that EIT won't have a single campus after all... but will be a "networked" university with virtual campuses across Europe. France and Germany are unlikely to do better with Google rival, Quaero. Over the next five years Google will spend $5 billion on R&D, compared with Quero's R&D $100 million. That's a 50 to 1 difference.

The European Paradox

Here's what Europe doesn't get. The secret of Silicon Valley and Google is entrepreneurial spirit -- combined with a tolerance for failure. Entrepreneurial spirit cannot be legislated by EU directive. And for every success story like Google, there are tens of thousands of failures. In Silicon Valley, failure is a badge of courage; in the U.K., it's a Scarlet Letter. George W. was right: the trouble with the French is that they don't have a word for entrepreneur.

Yet Europe can and does get it right... sometimes. Finnish Nokia (NOK) dominates the global cell phone industry, with a 75% market share in India. Germany's SAP (SAP) is the world's biggest seller of business software. German Adidas rivals Nike in the global sportswear business. Yet Europeans rarely celebrate these successes. On the flipside, European champions don't assault American pride. The U.S. government is unlikely to ever convene a commission to explore why U.S. champions Motorola and Oracle have lower global market share than Nokia or SAP.

The bottom line? Europe should stop treating the global economy like a World Cup match. Small domestic markets ensure that European multinationals are often more global in their outlook than their U.S. rivals. Instead, Europe should focus on creating a favorable environment where the Nokias and SAPs can thrive. And then just leave them alone to do what they do best.

Sincerely,

Nicholas A. Vardy
Editor, The Global Guru

P.S. Here's the paradox. Europe's economic growth rate is virtually stagnant. Yet it boasts dozens of the world's top performing blue chips. And as my Global Bull Market Alert subscribers know, the share prices of the European champions I've recommended have handily outperformed their U.S. rivals -- leading to double- and even triple-digit gains.

Sign up now to receive The Global Guru e-Newsletter FREE! Email Address: Yes! Please send me Nicholas Vardy's FREE weekly newsletter, The Global Guru.