A Eurocrat challenges the image of a continent in decline

One of Newsweek magazine's cover stories last month packaged the theme in a jazzy headline: ''The Decline of Europe: Economic stagnation and political malaise darken the future of a once proud and powerful continent.''

To Etienne Davignon, vice-president of the European Communities Commission, that sort of story is overkill. ''There is a degree of crisis of self-confidence in Europe,'' he admits. ''The degree of self-confidence you have in the United States you don't have in Europe.''

He sees changes, however, that offer hope for continued prosperity and greater political stability in Western Europe:

For example, a new consensus has developed throughout Western Europe that the role of the state in industry should be reduced, while the role of the enterprise should be enhanced.

Mr. Davignon noted in an interview here that people in Europe have thought of government as a way of redistributing the Continent's increasing wealth. They figured government could enlarge the security of the individual, leading to a nonrisk society.

''That dream disappeared with the oil shocks,'' he said, referring to the quadrupling of prices for crude in 1973-74 and the further huge boost in 1979. These shocks were followed by severe recessions. Governments realized there was a discrepancy between their capacity and their commitments.

Direct intervention in industry ''failed'' in the United Kingdom, West Germany, and France. As a result, there are widespread efforts to trim the state's role in investment. State planning has gone out of favor. Rather, enterprises - either state-owned or privately held - are being given more leeway to plan their own futures. Governments have moved to trim their budget deficits, make social welfare more efficient, and control inflation.

As the member of the Common Market's executive body in charge of industrial affairs, Mr. Davignon follows the business scene carefully. Asked if France's nationalization of several major industrial corporations and the last of its big banks did not contradict this decline in the state's function, he maintained that the ownership of a company ''doesn't matter much.'' What counts is whether they must be run as viable and profitable enterprises.

When the state is the owner, however, employees may feel that the security of their employment has been increased, he noted. This could impede moves toward greater competitiveness. But within the past six months, he went on, the Mitterrand government has been insisting that state companies make a profit. One result is the crisis in the steel industry in that nation.

Another shift in Western Europe is the growing recognition that small, entrepreneurial companies are more likely to provide technological progress and jobs than older, bigger, existing companies, and certainly more than in the declining traditional industries, such as steel, textiles, shipbuilding, and so on.

In the last decade, he pointed out, the United States with its vital, small enterprise has added 10 to 12 million jobs. In the same time span Western Europe has increased the number of jobs by only 500,000 to 600,000.

''We have not had this blossoming out of new enterprises,'' he said. ''The overall environment is not so attractive.'' As a result, some European money has moved to the US, where the risk and return for enterprise are better.

But Mr. Davignon sees attitudes and policies toward entrepreneurs changing in Europe. For example, in all West European nations, telecommunications is a state monopoly. That limitation must be lifted, he maintains, leaving more room for entrepreneurs.

Mr. Davignon sees Europe moving gradually toward more competition in industry , but not the degree of ''chaotic competition'' he says is prevalent in the US. ''Our background does not allow that.'' He hopes national governments will make better use of the European Community's mechanisms to encourage modern industrial development.

Nor does he expect Europe to abandon the extensive social-welfare system it has built up over the decades; rather it will trim the system to make it more consistent with each nation's economic capacity.

Further, he believes Europe's old industries (steel, autos, and so on) will make ''quite spectacular adjustments'' in the next few years, reducing staff and modernizing.

What is key, the high European civil servant says, is whether Europe will develop the new high-tech industries (such as electronics, software, and biotechnology) successfully, or be an also-ran. In these areas, he added, the cost of labor and raw materials is not so vital. Europe has a strong research-and-development capacity, but has not been as successful in transforming the results of its research into commercial products as US companies have. The life of products, however, is relatively short in these new industries, giving new companies a good chance to leapfrog into a favorable position quickly.

''This is basically our challenge,'' he said. ''You have to be competitive with the best.''

Despite the prevalent gloom, he sees hope for industry in Europe. ''The adjustment is occurring,'' he said. ''And one always has a little more time than you think.''