Betting on the EU; The Buzz: Despite the problems ahead, at least one influential group seems to have faith in Europe: U.S. companies.(Cover Story)

Byline: William Drozdiak, Drozdiak is the executive director of the German Marshall Fund's Transatlantic Center in Brussels.

Europe may be enlarging under a cloud of skepticism, but it's getting a strong vote of confidence from a surprising quarter. Seeking to position themselves for what they anticipate will be at least half a decade of boom times in Europe, U.S. companies are plowing huge investments into the Continent, both east and west. It's a timely reminder that, for the all the hoopla over China and the emerging markets of Asia, the reality is that the often underestimated Old World offers income-hungry multinationals the biggest future bang on their global buck.

Sound unconventional? Consider the facts. Along with the United States, Europe still indisputably dominates as the most powerful twin turbine of the global economy. Transatlantic commerce accounts for close to 60 percent of the world's trade and investment, worth $2.5 trillion in GDP annually and employing some 12 million workers. U.S. investment in the tiny Netherlands is twice that in Mexico and 10 times as much as in China. That's not news, of course. The surprise is how much U.S. investors think it's set to grow.

While Asia may enjoy the hottest buzz, major corporations like General Electric believe that an expanded Europe offers greater potential for short- and medium-term profits. And they are adjusting investment strategies accordingly. Microsoft and Intel, among others, recently announced that fully half their global revenues will come from Europe this year. That figure could be even higher next year, notwithstanding the beneficial effects of the past year's sharp fall in the dollar. "The European Union is now the largest pool of purchasing power in the world, even more important than China," says Ferdinando Beccalli, General Electric's president and chief executive for Europe. "That's why we are there in such a big way."

Part of the shift is the fault of China, where gaudy FDI numbers belie the more sobering fact that few corporations are making much money on their investments. Fears that the country's economy is overheating--or worse, approaching what some execs call the "bubble point"--inspires further caution. But what's really drawing U.S. investment to Europe is the desire to get in early on an expected boom. Initially the 10 new members will add only about 5 percent to the EU's combined GDP. But history seems to justify high optimism. Every major European enlargement has been accompanied by three to five years of rapid growth--if not generally, then at least regionally.