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The European Institute of Technology (EIT) was due to begin operations next year, bringing together universities, research firms and business to focus on specific topics, such as climate change or nanotechnology.

However, MEPs want the EIT's name to include the word "innovation" and say it should be established only after a pilot phase of "two or three projects", to test its feasibility.

"Innovation is Europe's Achilles' heel," says Finnish MEP Reino Paasilinna. "It should be our main objective to increase our innovation capacity. We need more innovation in Europe to remain globally competitive in the future and to guarantee growth in jobs. The EIT could help us to realise that goal."

The European Commission and Council must now find a way to raise an estimated €2.4 billion from private and public sources to fund the new venture.

Last week, the Lords' European Union Committee said that it doubted whether the proposed institute could attract the support from business that it will need to stimulate commercially successful innovation.

"We agree that there is a need in the European Union to stimulate

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efforts to improve collaboration between business and universities in the commercial application of technological innovation," said Baroness Thomas of Walliswood, chairman of the Committee.

"However we do have concerns that what is currently being proposed will not be the best way to ensure that the projects taken forward are commercially successful, as well as innovative," she said. "It is vital that business is heavily involved in the EIT from the outset, and as a Committee, we feel that ensuring business buy-in must be the focus of EU efforts in establishing the EIT."

The Committee believes that more should be done to promote collaboration between businesses and universities, following the findings of a 2003 UK study. The Lambert Review of Business-University Collaboration concluded that significantly more business input into universities' priority setting and decision-making processes is "a necessary condition for making sure that the projects carried out had more chance of taking account of consumer markets and of resulting in the introduction of commercially successful, as well as innovative, products and services".

Had the European Parliament commissioned a Europe-side study along these lines, its proposals may have been "different, and more effective" the Committee said.

The Committee also questioned the size of the suggested budget, noting that while the institute's operations have been scaled down significantly in the latest proposal the budget is unchanged.