The European Commission has fleshed out its plan to build a European Institute of Technology (EIT).
A governing board will spot areas of interest, such as green energy or nanotechnologies, and then support teams put together by universities, research organisations and industry will do the research.
Education and training commissioner Ján Figel said the institute will be a "flagship of excellence" that is able to attract the best students and researchers worldwide.
The support of industry will be key in helping to nurture an entrepreneurial mindset among graduates and researchers, he added.
The Commission is still discussing how the EIT should award degrees or diplomas and how much the project will cost.
After the summer, the EC plans to present an impact assessment for the EIT, which will be followed by a formal proposal outlining key issues - such as the location of the governing board and a detailed budget - with the aim of the institute being ready for the 2009-10 academic year.
Europe has found it hard to translate R&D into commercial success, which some blame on the lack of innovation and entrepreneurial culture in higher education.
A further problem is the current fragmentation of Europe's university-based research, with more that 2,000 centres looking to do research.
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