BERN (SWITZERLAND) - IN A radical move from the past, Germany's Johann Wolfgang Goethe University started charging fees this new academic year.

More importantly, in another historic shift, the university in Frankfurt will become a foundation university next year. This means it will gain more autonomy over its funds, selection of students and appointment of academic staff, all of which are now controlled by the states.

As president of the university, Dr Rudolf Steinberg, puts it, the university is undergoing its 'most important reforms of the past 50 years'.

And Germany's universities will be watching Frankfurt's experiment, a sign that major changes are under way in the country to increase the global competitiveness of its higher education institutes.

Although once leaders in higher education, many European universities are now suffering from a lack of funding and poor governance.

In the keenly-watched Shanghai Jiaotong University's ranking of higher education institutions this year, only two European universities made it into the top 20 - Cambridge and Oxford, both British.

An egalitarian principle of giving a fair chance for all to receive higher education - leading to low or no fees and low entrance bars - means that student enrolment at universities has gone up. State funding, however, has not kept up.

Low or no fees means that many students take their time to finish their degrees, if they even do. In France, for example, dropout rates are at 40 per cent. In Germany, it is not uncommon for students to stay enrolled into their 30s.

As a result, many universities are overcrowded and under-resourced.

Bruegel think-tank's Andre Sapir explained that the priority in European countries after World War II was to expand access and provide higher education to as many as possible.

But with that mission solved, a new problem has arisen - European universities have started to fall behind in their other mission of research. And a key reason for this is the lack of autonomy, explained Mr Sapir.

Indeed, as Bruegel found in a study, 'having budget autonomy doubles the effect of additional money on university research performance'.

After dithering for years, Europe's governments are taking action to deal with the twin problems of poor funding and lack of autonomy.

In Germany, to deal with the problem of dawdling students, anyone who has already studied for 14 semesters, or seven years, could be levied fees of up to 500 euros ($1,054) for each subsequent semester. Some students take the minimum of four years but most take five to six years to complete their degree course. Laggards may take up to 10 years.

Since 2005, legislation has also been cleared to allow universities to extend fees to all.

For Johann Wolfgang Goethe University, for example, fees will bring in 11 million euros, enabling it to create 85 new positions to improve teaching, renovate 66 event rooms, set up temporary classrooms and improve media facilities.

In addition, the government also ran a competition to encourage universities to compete for extra funding. Winners get access to a pool of funds worth 1.9 billion euros and join an 'elite' circle.

Similar moves are afoot in neighbouring France.

A Bill was passed recently to give universities more control over their budget.

The move to grant greater autonomy to universities and allow closer ties between universities and industries has brought students into the streets to protest against what they see as the creation of a two-tier system that focuses funding on a few elite institutions and gives companies influence over courses.

Paris Assas II became one of the first to declare foundation status in a vote last month. It said it would define a programme to look at potential donors and launch a campaign to raise funds.

It is hoped that with the moves, the best academics, many of whom have been lured to the United States or Asia, will return.

It is not hard to see the allure in the US, for example, where cash-rich universities such as Harvard and the Massachusetts Institute of Technology (MIT) have the resources to offer better facilities as well as higher pay.

While an average of less than 10,000 euros is spent on each student in the European Union (EU), in the US, the corresponding amount is 35,000 euros.

Even highly ranked universities such as Oxford and Cambridge are seeking more funds along the lines of US universities. Oxford this month announced a fund-raising drive for ?1 billion ($3 billion), which will be spent on scholarships and bursaries for poorer students, as well as a series of building projects.

One of the most highly ranked research institutions to come out of Europe, Switzerland's ETH group, also said it required more funding to compete.

For example, ETH Zurich, which has about 10,000 students, said that while it has a billion francs ($1.28 billion) to work with, MIT has double that amount for the same number of students.

Beyond funds, universities are looking abroad to forge links in order to enhance their competitiveness.

To this end, the EU is undergoing a so-called Bologna Process, which aims to align university education across the bloc, so that the whole region becomes an attractive destination for highly skilled individuals from outside the bloc to study and work.

Swiss universities have even gone beyond the region to seek foreign partnerships further afield to enhance their universities' competitiveness.

Basel University started a master's degree programme jointly with the National University of Singapore on tropical infectious diseases. The 18-month research-based programme will see students move between Basel and Singapore for their courses.

It is hoped that the programme will continue to attract about 20 students per round.

Dr Markus Wenk, an Associate Professor at NUS who coordinates the programme, said he believes that there could be more similar collaborations.

Also, the ETH group is now working with Singapore's National Research Foundation to start a research centre on environmental issues. It is expected that the cooperation will give both parties access to a much larger talent base.

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