The increasingly open and competitive global economy and the shift to high value production based on information and knowledge requires a strong and rapid response from Europe if it is not to fall behind economically, with profound consequences for its social and cultural dynamism. Higher education and research are vital ingredients in the European response to these challenges. However, if universities are to be more effective in supporting and catalysing innovation in Europe, action is required under three broad headings, which should also be the headline issues for the European Commission in their Broad-based innovation strategy for the EU: enhancing supply of relevant university capacity; stimulating business demand for skills and research/knowledge; and improving university-business interactions. LERU´s recommendations under these three headings are relevant to member states, to the European Commission and to universities.