The increasing reluctance of ÖйúAƬ funders across Europe to cover the full cost of universities' activities could threaten their sustainability over the next decade.

This is the view of Thomas Estermann, head of the governance, autonomy and funding unit at the European University Association, who has co-authored a major new report on the financial viability of European institutions.

Financially Sustainable Universities II: European Universities Diversifying Income Streams, published by the EUA this week, says that many European universities are keen to diversify their income streams to protect themselves against further anticipated falls in public funding and to free themselves from the constraints that public funds often impose.

But the report, which is based on wide consultation with universities across the continent, warns that the expansion of co-funding arrangements, in which funders cover only a proportion of the full costs of activities, are a "major obstacle" to income diversification because of the toll they exact on universities' core funding, which is often called on to make up the shortfall.

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"This is one of the big underestimated challenges for funding in ÖйúAƬ, but it is not being recognised by funders," Mr Estermann said.

"Most of them look only at their own funding streams and think co-funding is not a big problem. But some universities have hundreds of different funding sources, and it becomes very complex for them (to monitor and plug the gaps).

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"This needs to be addressed very quickly because if it continues for the next decade, there will be a lot of problems for Europe's universities."

He also called on public funders to simplify and harmonise their administrative requirements and said states should do more to promote private donations by foundations, companies and alumni - which currently make up about 10 per cent of the sector's income.

This could be achieved by introducing match-funding schemes, in which a government matches private donations. The UK introduced such an initiative in 2008, but it is due to be wound up this year.

Mr Estermann said these schemes, although rare in Europe, had been very successful where they had been adopted. "Donors and universities are happy to have donations doubled, and governments are content because it allows them to trigger quite a strong activity from universities without necessarily spending an enormous amount of money."

The report warns that efforts in many countries to increase institutions' fundraising capacity are being hampered by inflexible decision-making structures and by a lack of autonomy over finances and staffing.

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The recruitment of specialists in finance, research administration and knowledge transfer is crucial to the success of diversification strategies, the paper argues.

Universities must also do more to "project their brand" to potential donors and to build wider, longer-term relationships with industry, the report recommends. But it cautions them to "ensure consistency between their core mission and the external funds being pursued" and to "be wary of placing an excessive focus on short-term cooperation to the detriment of basic research".

Change can come

Noting that the UK had gone further than most other European countries in professionalising fundraising, Mr Estermann predicted that it would take several years for others to make the necessary "culture change".

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He said strong leadership and clear internal communications were essential to convince academics of the need for institutions to diversify their income streams and to reassure them that participating in such moves would not infringe their autonomy or distract them from research and teaching.

Introducing incentives such as allowing departments and individual academics to share income from consultancy work could also help overcome opposition, he added.

Across Europe, the report notes, more countries are considering introducing tuition fees.

It predicts that further national budgetary pressures could encourage European governments to follow the UK's lead and direct a proportion of block grant funding to priority subjects.

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paul.jump@tsleducation.com.