For centuries across Europe, brute political force and economic power have propelled the rise and fall of empires from Spain and Austria-Hungary to Britain and Germany. Today, a new disruptive force is stalking Europe, heralding an order of its own. It is, thankfully, more benign; after all, it leaves no human toll in its wake. But the new force—the power of the Internet—is well on its way to creating empires and casting aside other economies.

E-commerce has already created startling pockets of wealth that could grow and sustain certain economies, much as stock options have helped turn the U.S. federal budget deficit into a surplus. The Internet has given established companies hopes of becoming both far more efficient and more innovative, which could make certain economies more productive, with low inflation. If ideas can turn into solid businesses, the Internet could even cut into chronic unemployment problems. On the downside, millions of workers may need to be retrained, or somehow adapt to the New Economy.

Although it’s not yet clear how the Internet will change countrywide economies, it is clear that the Internet is going to be a dominant force in the world of business. So, countries—not just companies—will have to adapt quickly or risk losing the battle for innovative ideas, for skilled workers, and for the facilities of successful corporations.

Thus far, Britain and members of the Scandinavian countries, especially Sweden, seem to be winning. Germany, after a slow start, is coming up on the field. The laggards: France, Greece, Portugal, Spain, and Italy.

Those countries that are ahead now could well be seen as the places to be and develop an ever greater advantage over the losers. "Countries that have had a head start will maintain it," argues Mikael Arnbjerg, analyst in Stockholm with IDC, an information-technology research firm.

While it will take years for e-commerce’s effects to emerge fully, here is a handicapping of how Europe’s biggest economies are faring:

FRANCE
Olivier Cadic, the 38-year-old founder and general manager of Info Elec, says that in 1997 high tax rates in France pushed him to relocate his Paris-based business a couple of stops up the Eurostar train line—in Kent, Britain. "You save a lot of money if you come here," the Frenchman says.

In its first year in business in the United Kingdom, Cadic’s company saved £300,000 in taxes because its corporate tax went from 37% in France to 20% in Britain. In addition, the company’s social security costs toppled from 48% of each employee’s salary to 10%.

Cadic invested his savings in the Web and kicked off an e-marketplace for the printed circuit board business at the end of 1999. He claims to have the world’s leading e-marketplace for his industry.

Cadic has now founded an association called Free France, Free Enterprise, to help French folks thinking of relocating to Britain. He says there are 847 members, all of whom either have relocated or want to move. "I love Paris," Cadic says. "I would move back if the laws were different."

France also has high income taxes on individuals, limiting the potential riches for entrepreneurs—it’s probably no accident that Pierre Omidyar founded eBay in the U.S., rather than his native France.

Obviously, not every Frenchman is going to run to the border as soon as he has an idea for a business. But once the start-up makes some money, high-tax, low-flexibility countries like France and Germany lose out, says Philippe Vyncke, tax partner at PriceWaterhouseCoopers in Belgium. Internet companies can operate from anywhere, so, he says, key parts are relocated to lower-tax regions.

For established businesses, the socialist approach to government in France limits layoffs, inhibiting companies’ ability to use the Internet to become more efficient.

The famous French insistence on preserving their language curbs their ability to even use the Internet, where the international language is English. Oddly enough, so does a move that seemed to mark France as a pioneer almost two decades ago. That move was the decision to issue Minitels as part of phone service. The Minitel, a screen-based electronic information and commerce system, became wildly popular and is now used by 7.5 million households—who are more likely to use the limited, private, French network than to use the Internet.

"France clearly has the technological expertise for success in this economy, but is a society based on the model of a massive, bureaucratic, centralized state [and] remains phenomenally expensive and inefficient," says Marvin Zonis, a professor of political science at the University of Chicago business school.

Andy Lippman, associate director of the MIT Media Lab, is more direct. France, he says, "is a terminally befuddled country."

ENGLAND
By contrast, England seems perfectly suited to the Internet and other innovations. It has developed Silicon Valley look-alikes near Oxford and Cambridge universities. The country has raked in the most venture-capital and private-equity money in Europe for technology investments in recent years, according to figures from PriceWaterhouseCoopers. In 1999, Britain got 60% more than Germany, the next on the list.

In general, England has a free-wheeling economic culture of relatively unrestricted labor markets, wide-open capital markets, and entrepreneurism. England liberalized its telecommunications market back in the 1980s, long before its neighbors, creating conditions that made Internet access relatively easy and cheap. Tax structures favor stock options—seen as a huge driver of Internet start-ups in the U.S. "more than on the Continent.

"The U.K. has a better financial infrastructure. That’s why we have moved further, faster," says Tim Hammond, chief executive of London-based incubator Ideas Hub.

There is plenty of evidence. Outfits such as auction-site QXL, Europe’s answer to eBay, and peoplesound.com, a music site, made early efforts to establish pan-European businesses, seen as a key to success in Europe’s Internet future. Britain’s Freeserve brought the concept of a free Internet service provider to Europe and helped propel Britain’s Internet usage figures. In the business-to-business arena, Britain has been an early mover, too. For instance, mondus.com is an e-marketplace that sells supplies to small and medium-size companies. Then there is Vodafone, a young company whose bold acquisition of Germany’s AirTouch and Mannesmann brought it world leadership in mobile-phone operations.

In addition, when U.S. companies come to Europe, they tend to launch their innovations in England. That’s partly because the environment is similar to the U.S., partly because the countries share a language, and partly because adoption of new technology is high in England. In Britain, 31% say they frequently use the Internet, and 40% have mobile phones, according to IDC.

British Prime Minister Tony Blair, who has created an e-commerce minister, promises to make Britain "the best place in the world" for e-commerce by 2002.

GERMANY
Germany certainly didn’t start out as a favorite in the race to lead in the New Economy. Its highly restrictive labor laws—until recently, stores had to close by 6 p.m. on weekdays and 2 p.m. on Saturdays—didn’t lend themselves to a 24x7 economy. (Stores still have to close on Sundays.) The phone company, a monopoly until 1998, charged such high rates on local calls that few could afford Internet access. The government largely let manufacturers set retail prices, blocking the widespread price-cutting that stoked the Internet fervor in the U.S.

But the government recently made a series of moves to liberalize pricing and labor laws. In addition, the internationally minded Germans are more comfortable with the Internet’s mother tongue than the French are.

Because Germany has long been Europe’s powerhouse economy, it was already drawing considerable interest from entrepreneurs. Germany trails only England in attracting venture capital and private equity for technology investments. The two countries each serve as home for about a third of Europe’s publicly traded Internet companies, according to investment bank WestLB Panmure.

As with England, the evidence of success is ample. Germany has technology prowess from companies such as giant software house SAP and Intershop Communications, a premier player in e-commerce software. Internet access provider T-Online, a spinoff of phone giant Deutsche Telekom, is the Internet stock with the highest market capitalization in Europe. Deutsche Telekom, slowly being freed from state control, has launched a $50 billion bid to buy wireless company VoiceStream Wireless and may become a global power. A start-up to watch is the recently launched efoodmanager, a pan-European e-marketplace for the food industry, which already initiates sales of 7.5 million euros a month.

Perhaps the true success in Germany will come because it is exploiting the business-to-business market. Merrill Lynch estimates its companies will transact $18.3 billion of business online in 2000, compared with $14.8 billion for the U.K.

Germany’s taxes may still be too high. Its corporate tax rates of 40% are higher even than France’s and far out of line with the 12.5% rate in Ireland and rates of 10% to 15% in Switzerland. On top of this are hefty social security payments that employers must fork over to the government for each employee.

Still, Therese Torris of Forrester Research says: "Germany’s compelling combination of economic and technological strength will bring its online position in line with its overall economic size—to the top."

SCANDINAVIA
Scandinavia has staked its claim to being the Internet capital of Europe because its citizens are such heavy users. In Sweden, for instance, IDC says 45% regularly use the Internet, while 57% have mobile phones, which may soon be used more widely for Internet access.

Scandinavia has also produced a huge number of technology start-ups. For instance, Letsbuyit.com, an 18-month-old Swedish company, helps consumers use collective purchasing power by pooling together to buy from the manufacturer at a lower cost. Sweden is also well-known for Web-design houses, such as Icon Media Lab and Framfab, which do work across Europe. In the nascent world of European business-to-business e-marketplaces, a Swedish entrepreneur created an intriguing one, called Steelscreen, for the steel industry.

Sweden’s Ericsson, like Nokia in Finland, is building on its cell-phone market share to try to dominate Europe’s move toward the "wireless Web." Ericsson has spawned a Silicon Valley-style technology cluster just outside Stockholm. Companies like Microsoft, Nortel, Compaq, and Intel have established wireless centers there. A similar cluster has sprouted in Finland near Nokia.

Sweden, in particular, seems to already be benefiting. Despite its rigid labor markets, GDP growth last year was 3.8% and is expected to hit 4.5% this year, without inflation topping 2%.

SOUTHERN TIER
Among other problems, IDC says Internet usage is low in Italy, Spain, Portugal, and Greece—Italy is at the high end, with just 14% of its population regularly using the Internet; Greece is at the low end at a mere 6.5%. "The average temperature of a country is not that bad an indicator of Internet penetration," says James Eibisch, research manager, Internet access, at IDC Europe, Middle East, and Africa. "If the weather is beautiful you are going to be outside, not surfing the Internet inside."

In southern Europe, many consumers don’t have personal computers, and companies—often small, family-owned businesses—don’t spend much on information technology. While there are some successful high-tech pockets, such as areas around Milan and Barcelona, they have not yet reached critical mass. Competition, of course, won’t be just within Europe. It will be with the U.S. and the rest of the world. And Europe seems to be stepping up to the challenge.

European e-commerce spending is expected to rocket from 82 billion euros this year to 1.6 trillion euros in 2004, according to Forrester. In the 12 months that ended June 30, 2000, some 7.8 billion euros in venture capital was pumped into technology investments in Europe, up from 1.1 billion euros the prior year. There are now about 200 publicly traded Internet companies, up 50% from Jan. 1.

So, in the broadest sort of competition, all of Europe may be in better shape than it was a year or two ago.

Dawley is a free-lance writer based in Kent, England. She can be reached at heididawley@email.msn.com.