PARIS -- Within two years, the European Community will enter a brave new world that many of its movers and shakers believe will create an era of unparalleled prosperity and breathtaking historical change.

On Jan. 1, 1993, all national borders will tumble between the 12 member states, creating a single market that will allow their 340 million citizens to travel and change jobs, invest their money and sell their products as freely as Americans can within their own country.

Even more ambitious plans will follow. By the end of the decade the German mark, the English pound, French franc and the Italian lira may become as obsolete as the Edsel. A single currency, known as the "ecu" and managed by a European federal reserve, would replace all those assorted currencies.

That, in turn, is expected to build irresistible momentum toward a single European economic policy that would inevitably require full political union. National governments would pool their sovereignty and elected leaders would make all important decisions at a single, European level.

Those remarkable goals, coupled with the democratic revolution that swept Eastern Europe last year, have infused Western European countries with a sense of dynamism and ambition that they have lacked since World War II. With the collapse of the Soviet empire and troubled economic conditions confronting America after the profligacy of the Reagan era, Europe has suddenly emerged as the darling of think-tankers and moneymakers alike, the land of golden opportunity in the 1990s.

But is it, really?

Since the Persian Gulf crisis erupted last August, a more sober assessment of Europe's potential has been taking place. Iraq's seizure of Kuwait again demonstrated how both Western and Eastern Europe have become precariously dependent on oil and gas sources in politically unstable regions, notably the Persian Gulf, North Africa and the Soviet Union. Sustained turmoil in any of those areas -- coming on the heels of the current worldwide economic slowdown -- would certainly slash growth projections and transform a limitless horizon of affluence into a gloomy scenario of high inflation and high unemployment.

Progress in Good Times

Such fears are not merely hypothetical; in Europe, it has happened before. In 1972, after a period of steady economic expansion and Britain's entry into the European Community, the EC's leaders agreed to a timetable for an economic and monetary union that was supposed to be achieved by the end of that decade. But a year later, war broke out in the Middle East and an oil embargo sent European governments scrambling to salvage their economies and electoral prospects. The meticulous agenda for European unity in 1980 became a shambles and was not resurrected until recently. Indeed, the history of European integration has shown that the member states make important progress during good times but experience trouble reconciling their myriad national interests during periods of economic downturn, which seems the most likely condition for the coming years.

The fact that Europe dithered while the United States mobilized the troops and firepower to stop Saddam Hussein after he invaded Kuwait and turned his gaze toward Saudi Arabia was another painful reminder that despite its clout as a leading commercial power, Europe is still not prepared to act decisively and quickly to protect its own security and economic interests. The gulf crisis has shown, said Belgium's Foreign Minister Mark Eyskens, that Europe "is an economic giant, a political dwarf and a military worm."

Even if the Persian Gulf War ends quickly, or without serious economic repercussions, there are other troubling developments that threaten to derail Europe's pretensions of becoming a dominant political and economic power around the world.

The tremendous difficulties facing Eastern European countries and the Soviet Union in transforming state-run systems into market economies and altering the work habits and consumer instincts of their populations will require massive and sustained assistance from their Western neighbors.

Investing enough hard cash to rebuild those economies is a big part of the problem, but only part. Increasingly, Western business and political leaders stress that incorporating the economies of the East Bloc and Soviet Union will require an infusion of technological, financial and management talent that is likely to be focused on the integration of Western European economies for most of the decade.

Still, the EC countries know that they have no other choice but to make this massive investment of money, talent and attention to help the East. For if they allowed those economies to collapse, the material deprivations would drive much of the population toward the West in search of food, work and shelter.

A recent study by the EC's executive commission concluded that even if there is no breakdown, up to 8 million people from Eastern and Central Europe are likely to move west in the next five years. That huge influx could exacerbate a persistent shortage of jobs and housing, especially in Germany, and worsen social tensions in Western Europe.

While the immigrants might provide a new source of cheap labor -- and, indeed, high labor costs are a central problem for European countries trying to compete with the United States and Japan on world markets -- they would also be a serious drain on the generous social welfare benefits, such as six-week paid vacations and subsidized medical care, that are considered sacrosanct in Europe.

Economic Reforms, Too

Besides the problems of the East and its preoccupation with the process of integration, Western Europe will also need to undergo important economic reforms.

For too long, many European firms enjoyed the cozy protection of national governments that were willing to subsidize losses and build barriers to competition because they could not tolerate the political costs of plant shutdowns and job losses. A key question now, as global economic challenges grow more intense, is whether European companies can learn to survive on their own in an open continental market -- and world markets -- without such aids.

In key industries like computers and automobiles, the United States and Japan have already consolidated big leads over their European competitors and are poised to take greater advantage of the huge internal market that will open up in the EC within two years.

In the computer industry, for example, International Business Machines Corp.'s overwhelming dominance has forced European computer firms like Philips NV, Olivetti Group and Honeywell Bull to eliminate thousands of jobs this year in a desperate attempt to rebuild their firms and make them more efficient, and in the end only state subsidies may keep them alive.

Subsidized automakers such as Peugeot, Fiat, Volvo and Jaguar, looking at declining market share, have already been forced to lay off workers and seek international partners.

Airbus Industrie, the European commercial aircraft manufacturing consortium, has yet to operate on anything like a break-even basis, despite more than a decade of government subsidies.

Even the pharmaceutical industry, which thrived during a decade of mergers and profits in the 1980s, is anticipating rough times as governments increase pressure to slash prices and patents expire on some of the best-selling drugs produced by companies such as Bayer A.G. and Ciba-Geigy A.G., inviting a rush of competition from lower-cost generic drug manufacturers.

Optimists See Efficiencies

Despite such daunting hurdles to the creation of a dynamic and united economy, the optimists believe that Europeans realize they can surmount these challenges only by further pooling their sovereignty and their resources. The EC executive commission is touting a study claiming that the introduction of a single currency by itself will create efficiencies worth $130 billion to European companies each year, an amount equal to the entire gross national product of the Netherlands. With the help of such efficiencies, and a big, prosperous market at home, the EC looks to a day when its products and services compete successfully with the best from Japan and the United States.

"Even if the gulf crisis has been a cold shower for those who believed in rapid progress toward political and military union, Europe still retains great potential to emerge as this decade's economic superpower," said Dominique Moisi, associate director of the French Institute for International Relations. "While differing political interests may cause friction from time to time, {European} Community members increasingly see that their long-term national economic interests are best served by moving toward greater integration."

Pessimists Cite Talks

The pessimists, however, can point to the recent collapse of worldwide trade talks in Brussels as fresh evidence that Western Europe is not yet ready to exchange the security of relatively closed economic borders for the efficiencies of consolidation and the possibilities of competing more successfully for business around the world.

Those talks failed largely because France and Germany would not abandon agricultural subsidies that allow their farmers to sell surplus cereals around the world below the cost of production. And should that stalemate continue, Europe -- like the rest of the world -- is likely to drift toward protectionism, shunning trade with Asia and North America and increasingly turning its attentions inward.

"I believe the 1990s will still be known as the decade of economics, and to that extent, the European Community will be a major geopolitical factor," said Robert Hunter, vice president of the Center for Strategic and International Studies.

"But the difficulties of coping with the crisis in Eastern Europe, rebuilding the eastern part of Germany, fending off immigration pressures and sustaining prosperous democracies will be so great that Europe's attention will be focused almost exclusively on its own continent."