The role of higher education in the society of knowledge is recognised both at European and Member State levels. This level of education is called upon to make a significant contribution to achieving the Lisbon objectives in terms of growth, prosperity and social cohesion. The European Union "Education and Training 2010" work programme clearly emphasises the importance of modernising higher education institutions and of the reforms encouraged by the Bologna process, with a view to establishing a European Higher Education Area. To meet these expectations, higher education has to respond to some major challenges: it must achieve a level of quality that stands the test of international comparison, improve governance and accountability, increase its funding and diversify its sources of funding. These major aims presuppose changes in higher education that have to be among the top priorities on the policy agenda and in the national strategies of European countries. The present study highlights the process of modernisation at work in higher education in Europe and analyses in particular the structures of governance, the methods used to fund higher education institutions and their responsibilities vis-a-vis academic staff. It also draws attention to the wide variety of models of governance, for example as regards private fund-raising, or decision-making bodies inside institutions. It further emphasises that important national debates are under way concerning the strategic policies of higher education, which involve a wide range of stakeholders. Appended are: (1) Documents of national strategic policies for higher education, 2006/07; (2) Institutional governance bodies, public and government-dependent private higher education institutions, 2006/07; and (3) Criteria used for public grants awarded to public and government-dependent private higher education institutions, 2006/07. A glossary is included. Individual chapters contain footnotes. (Contains 22 figures.)