A week ago, I opined about the state of higher education in the United States. My outlook was rather grim. Europe looks better, but still faces challenges and they are largely of its own doing.
Let us first look at what Europe is doing right. Of course, each country is different, but there is a general sense that universities need reform to open up and become more competitive (both in the sense of becoming better and competing more). The most visible part of this reform is the Bologna process, that makes studies comparable and will thus increase competition. Also, as European universities are mostly publicly funded, they tended to be controlled tightly by the main funders. They have gained significant autonomy in several countries, notably Italy and France, allowing to recruit faculty better adapted to their needs. Some countries, notably Germany, have also introduced more flexibility in hiring and pay scales, which has made it possible to hire more "star" faculty who had better conditions in the US.
European universities do not face the fluctuating income of their US counterparts. Funding is pretty much guaranteed not matter what the economic conditions are, which allows for good planning. That said, overall funding is still rather low, as there is little tuition income that can give a university that extra edge for resources.
But European universities have still issues. They are still overcrowded. They are still a far cry from US universities in terms of research, at least in Economics. They try to emulate American universities, but in odd ways. One is that more and more four year undergraduate programs are created where three years would be sufficient. US students still need two years of general education before tackling their major. European students come much better prepared from high school and can specialize right away.
Also Europeans try to emulate the competition between US universities by means of evaluations. It is a good-hearted attempt to make funding depend on performance. But as so often, nothing beats the market system. US universities attract the staff that is best for them, and that is not necessarily measured by the number of publications or citations. For example, faculty that are very good at attracting and advising students carry a market premium that cannot be measured otherwise. And the sad part it that this European evaluitis is expensive and eats a substantial part of the funds to distribute. The solution is to give even broader autonomy to universities. They can hire whoever they want, at the price they want. And they need to deliver a product, education and grants, that is also allocated by a market. That means in particular that the government is also not in the business of allocating students.
PS: a recent development that worries me as well is that technical schools now also get the university label in Europe. That is again imitating the US, and this will drive up the proportion of the population that is university educated. That looks good on paper, but does not change anything in terms of outcomes, except for fooling people that all degrees are equal.