Low business spending on research and development is a major threat to the European knowledge-based economy, according to a new report from the European Commission. The report, 'Key Figures 2007 on Science, Technology and Innovation', looks at research and development (R&D) intensity, measured as the percentage of GDP (Gross Domestic Product) spent on R&D, in Europe and elsewhere. It reveals that although the EU's R&D intensity rose slowly but steadily during the late 1990s, by 2001 it had started to level off then decreased to just 1.84% in 2005, the last year covered by the report. 'As a result, R&D intensity in EU-27 remains at a lower level than in most of the other major world economies such as the US, Japan and South Korea,' the report warns. 'Moreover, new emerging economies such as China are rapidly catching up.' Over 85% of this 'R&D intensity gap' is due to differences in the levels of R&D funding from the business sector. Meeting in Barcelona in 2002, European leaders agreed that business should be funding two thirds of R&D by 2010. In 2004, just 55% of R&D in Europe was funded by the private sector, compared to 64% in the US, 67% in China and 75% in Japan and South Korea. The report attributes this difference in research intensity to differences in industrial structure and to the smaller size of the EU's high-tech industry. 'Knowledge is a key component of competitiveness,' commented Janez Potocnik, EU Science Research Commissioner. 'If our businesses are to be at the leading edge in the future, they need to invest in knowledge now. And governments need to put in place the appropriate measures to help them do so.' However, the public sector also needs to boost its R&D funding. 'Government funding of R&D is critical for creating and developing S&T [science and technology] capabilities (a prerequisite for catching up with countries at the technology frontier) and for supporting research projects with high expected social benefits, which the private sector may not find sufficiently attractive,' the report states. On research excellence, the EU lags behind the US on citation scores and highly-cited scientific publications, two proxies used to measure the impact of scientific output. EU universities are also largely absent from the top rank of the world's universities, as measured by citation impact. Knowledge transfer is also studied in the report, which notes that in EU countries the link between patented inventions and the science base is much weaker than in the US. However, there are grounds for optimism, as the report points out. High R&D intensive countries such as Austria, Denmark, Finland and Germany demonstrate that it is possible to maintain R&D intensity at levels above 2% or even 3% of GDP. Furthermore, the report only includes figures up to 2005. Since then the EU has launched new initiatives to boost R&D spending and knowledge transfer. This report shows that these new initiatives urgently need to be implemented.