By Justin Fox

(FORTUNE, June 12) -- For much of the 1990s, writing about Europe in business publications like FORTUNE amounted to embroidery on a single theme: When will Europe catch up? To quote just a few headlines from this magazine: When Will Europe Turn Around? (1993), When Will Germany Come Back? (1994), Europe's Technology Gap Is Getting Scary (1997), Why Are Europeans Still So Cool To E-Commerce? (1998).

Happily, those days are over. There are far more interesting stories to tell about European business now: high-wire takeover battles, executives bent on global domination, software billionaires, day traders, venture capitalists towing boatloads of money, Internet startups that blow all that money, and countless Finns and Swedes bearing mobile phones. It is a new era in the Old World. Entrepreneurs have become stars, equity investing has become something regular people do, and risk taking has become celebrated (if not universally practiced).

Still, if you accept that the most important battleground of today's global business involves the Internet and information technology (we sure do), then that nagging question remains: When will Europe catch up? Saying that Europe is technologically behind can seem a bit absurd--we're talking here about the land of superfast trains, smart cards, widely available digital TV, and the best wireless networks on earth. It also happens to be the birthplace of the World Wide Web (dreamed up in 1989 by a software engineer at the European Organization for Nuclear Research in Geneva). But European consumers and corporations have been infotech and Internet laggards. As a result of this lag and of a financial system geared more to keeping big companies big than to helping upstarts get that way, the Continent has produced only a token few of the corporate juggernauts (virtually all in one sector: wireless) shaping the globe's technological future and racking up massive stock market capitalizations in the process. The information revolution has so far been a made-in-America phenomenon (with most of the components made in Asia).

So when will Europe catch up? Well, now looks like as good a time as any.

For one thing, Europeans are buying more and more PCs and hooking them up to the Internet. By the end of 2001, projects IDC, an infotech research firm based in Framingham, Mass., there will be more people online in Europe than in the U.S. Just as important is the change in financial climate. The bank-dominated, nationally oriented financial systems of most European countries are giving way to vibrant, border-crossing stock markets (recently announced linkups include Frankfurt and London and Paris, Brussels, and Amsterdam)--and exotic new species like venture capitalists and startup incubators.

Conventional wisdom has it that the first consumer-oriented wave of the Internet swept over the U.S. so long before it reached Europe that companies there were reduced to fighting rear-guard actions. In business-to-business e-commerce, the conventional wisdom continues, it's looking more like a standoff: U.S.-based companies have a slight head start but not enough of one to effectively colonize Europe. And finally, in the new new thing of the moment, making the Internet portable, the continent of Ericsson (the world's No. 1 maker of wireless network equipment), Nokia (the No. 1 maker of mobile phones), and Vodafone AirTouch (the No. 1 cellular operator) actually has a significant head start. Said Intel Chairman Andy Grove in a recent visit to FORTUNE: "The U.S. is an underdeveloped country when it comes to digital cellular technology."

This thinking isn't all that far off the mark. But as the articles on the following pages make clear, the reality is more complicated, and more interesting. The consumer e-commerce wars, for example, are far from over. True, U.S.-based Internet companies dominate Europe-wide Web audience rankings (visit the top 25 Web sites in Europe). But within individual countries many of the favorites are local; despite having the world at their fingertips, Internet users like to visit portals, merchants, and other sites located closer to home. That gives U.S.-based Net companies a certain advantage, because their massive home market provides them resources to attack the world that competitors operating only in, say, Sweden or France simply do not have. But it also means that a lot of companies not based in the San Francisco Bay area--and in many cases not doing business in English--are finding ways to attract surfers (and someday maybe even profits).

When it comes to the companies hoping to strike it rich by linking businesses to other businesses, the picture is different. Europe is full of multinationals that already do business across borders, and even companies in fragmented, localized industries like construction and agriculture are going to be willing to at least look at customers and suppliers outside their own countries if somebody makes it easy enough for them to do so. As a result, those starting Internet marketplaces in Europe cannot afford to stick to their national market; they have to learn how to organize an international business from day one. Which means those that survive will prove formidable global competitors for U.S.-based B2B players hoping to expand abroad. However, the companies providing the hardware and software that make the Internet marketplaces run--Oracle, Ariba, Commerce One, IBM, Sun, Cisco--are still virtually all American, although Europe's lone software giant, SAP, is trying hard to get into the game.

Finally, in wireless, the European lead is real. It's not just Ericsson, Nokia, and Vodafone. Siemens of Germany, Philips of the Netherlands, and ST Microelectronics of Italy and France are among the leaders in building the semiconductors that make mobile phones and other wireless devices go. Nordic cellular operators and software startups are leading the way in finding new ways to use the mobile phone as a business and entertainment device.

But the U.S. isn't quite an "underdeveloped country"--it may be way behind the wireless hotbeds of Finland, Sweden, and Italy in mobile-phone market penetration, but it's ahead of France and Germany. California-based Qualcomm is the global leader in developing the newest wireless technology, CDMA. Phone.com, also from California, is a leader in adapting the Internet to mobile phones. As Silicon Valley's formidable invention and funding machine begins to turn its full focus on wireless, expect more such upstarts to challenge the Europe-based giants.

What's shaping up is a global free-for-all. The Americans have the Internet lead and are likely to do some catching up in wireless. Asia continues to dominate many key areas of electronics manufacturing and is making big strides in wireless as well. And the Europeans? In producing the basic hardware of the wired age--microprocessors, personal computers, and networking equipment--the Old World completely and embarrassingly missed the boat. But technologies change, once-hot trends become dead ends, and if the experience of the past two decades in the U.S. is any indication, there's always room for newcomers--as well as for old-timers with a capacity for self-reinvention. And now that venture capitalists and performance-hungry stock market investors are no longer unknown on the east side of the Atlantic, it's entirely conceivable that these newcomers and revitalized old-timers could be based in Milan or Frankfurt rather than Mountain View or Fairfield. That has already happened in wireless; it may happen in business-to-business e-commerce.

There's another way of looking at Europe's current situation, one heard now and then on both sides of the Atlantic. This view holds that the freewheeling U.S. is a society suited to innovation but too disorganized and short-term-oriented to get around to perfecting things. Meanwhile, stable, stratified Europe (especially Continental Europe) is bad at radical change and innovation but very good at honing and perfecting innovations dreamed up somewhere else. There's a historical basis to this: The Industrial Revolution was sparked by a bunch of risk-taking inventors and entrepreneurs in Britain, but it was the Germans who actually figured out the science behind making steel and mixing chemicals, and built big, methodical corporate organizations that soon surpassed their seat-of-the-pants rivals across the North Sea. So when all this Internet nuttiness settles down, the thinking goes, the Germans will figure out how to make Web sites that purr like BMWs and never break down, and the U.S. will be left in the dust (then, of course, the Japanese will get into the act and make Web sites like Lexuses, and before long Silicon Valley will be full of America-first protectionists). There's a seeming inevitability to this scenario that appeals to European traditionalists. But it may not apply in the Internet Age. It may be that the Net's most profound impact on business will be in dismantling the advantages of big, methodical corporations. Thanks to the Internet, companies will be freed to focus on the absolute core of their businesses, meaning that size will matter a lot less than agility and innovation.

If that's the case, then corporate Europe clearly can't sit around and wait for this Internet thing to settle down. And over the past year it has become clear that it isn't just sitting around and waiting. Big companies are spinning off divisions (Siemens' chip subsidiary Infineon, Deutsche Telekom's Internet service provider T-Online) to allow them to better do battle in this new world. Tech startups are being formed and funded right and left. Of course, that may not be enough. Europe's old ways may prove too rigid to allow "new-economy" capitalism to flourish. The world's technological fate may remain in the hands of khaki-clad Californians. But that's no longer a sure thing.