(FORTUNE Magazine) – WITH the January 1, 1993, deadline barely five months away, business is measuring Europe's progress toward a monumental goal: building a single market of 340 million free-spending consumers. Despite Denmark's rejection of the Maastricht Treaty, the broad, boundary-opening changes envisioned for the pivotal year of 1992 are arriving amazingly intact. Yes, the successes are tempered by compromises and even failures. The 1992 Express isn't a single locomotive racing right on schedule toward a barrier-free market. Instead it resembles a motley collection of Silverstreaks and milk trains traveling at different speeds and, in some cases, veering far from the original destination. The Express is on time to eliminate most highway border controls on January 1. Banking and insurance reform is also chugging ahead more or less on schedule. In airlines and telecommunications, the direction is right and momentum is building, though full liberalization will not arrive for several years. Automobile reform has been sidetracked, and EC social policy -- which mainly covers work rules -- is actually rolling backwards, away from lower costs and sharper competition toward more hoary, heavy-handed regulation. The EC deserves much credit for conceiving its daring plan of unity and pursuing it against tremendous odds. Europe will be a far more competitive economy than it would have been without the 1992 reforms. Overall, the EC gets three (out of five) of its trademark gold stars for achieving a respectable proportion of its free-market goals (see table). Launched in 1986, the single-market program consists of 282 directives covering everything from health and safety standards for machine tools to sales of mutual funds across borders. The EC has concluded many of the toughest reforms in the past year, against the tide of a recession forceful enough to beach the entire program. Hit by high interest rates exported from Germany, Europe's growth rate has dropped from 4% in 1988 to 0.8% in 1991, lifting the politically sensitive unemployment rate to 9.2%. How did 1992 surmount the recession? A powerful impetus came from the father of the single-market program, the EC's president, Jacques Delors, 67. His credentials as a French socialist and champion of the EC worker helped him to coax concessions from the leftist, protectionist, ''Club Med'' countries of France, Italy, and Spain. At the same time, the recession did nothing to shake the strong support for 1992 from a hard core of free-market countries led by Britain, Germany, and Holland. Most of all, 1992 survived because of a profound change in the outlook of European industry. At first the industry groups lobbied hard against deregulation, especially in such heavily protected sectors as telecommunications, airlines, and insurance. Despite the opposition, the EC in the late 1980s managed to push through a first wave of modest reforms. Britain and Holland began deregulating home markets in advance of 1992, helping to create powerful, low-cost competitors, such as British Airways, Mercury -- the privately owned British telephone company -- and ING, the Dutch insurance giant. Now they are poised to invade foreign markets and win business from the stodgy local monopolies. THE RESULTS are revolutionary. For the first time, business realizes it has as much to gain from open markets as from protectionism. Adventurous companies from KLM to Deutsche Bank have become champions of liberalization. ''We used to fight the EC's open skies program,'' says Karl-Heinz Neumeister, secretary general of the Association of European Airlines, the industry group for flag carriers. ''Now, in some cases, we advocate freer competition than the EC proposes.'' While the single-market reforms have been a success, the crucial second phase of European integration -- monetary union -- is in danger. On June 2, the Danes narrowly rejected the Maastricht Treaty, an amendment to the EC's original charter, the Treaty of Rome. Maastricht mandates not only a single European currency but also a framework for coordinating defense and foreign policies. The Danish rejection is extremely serious. To become law, Maastricht must be approved by all 12 member states, either by legislative vote or by referendum. The treaty calls for establishing a European central bank and currency by 1999. Replacing deutsche marks, francs, and lire with one currency would eliminate expensive, cumbersome hedging and other currency transactions that cost multinational corporations as much as $27 billion a year. It would also make it far easier for companies to sell their products across borders and for customers to compare prices. The demise of Maastricht wouldn't completely destroy monetary union. Germany, France, and the Benelux countries might adopt their own single currency. Their economies already follow similar, anti-inflationary monetary and fiscal policies. The problem lies with four less disciplined countries: Italy, Portugal, Spain, and Greece. To qualify for monetary union, they must meet rigorous goals for reducing inflation, deficits, and government spending. Without Maastricht's discipline, all are less likely to meet the 1999 deadline and could simply shelve monetary union. For now, the EC's strategy is to proceed with ratification in the other member states. There's no sign the Danish gloom has spread; Ireland gave Maastricht a rousing endorsement in a June 18 referendum. The pivotal test will be the French vote in September. Though a loss in France is unlikely -- the polls show a strong lead for ratification -- it would mean au revoir to a Europe-wide currency. If France and the other countries vote yes, the Danish government hopes to call a second referendum early next year. While Maastricht hangs in limbo, the single market is rewriting the rules in all kinds of industries. The impact on the key sectors follows.

-- AIRLINES. Europe's skies are about to get a lot more competitive. Now the EC is dominated by a club of flag carriers that enjoy not only monopolies inside their home countries but also exclusive rights to fly from their home bases to other European destinations. More than 95% of the 630 international routes in Europe are served by one or two airlines. Employees at Alitalia, Sabena, and Iberia are about 50% less productive than U.S. airline workers, but they earn far more: Lufthansa's flight engineers start at $117,000 a year, vs. $29,000 at United. Ticket prices reflect those stratospheric costs. A round trip between Paris and Brussels on Air France costs $526, vs. $270 on USAir for the comparable hop between New York and Washington. New regulations approved in June aim to shatter the cartel by freeing prices and opening the market to new entrants. Today an airline often needs the approval of both its home government and the government in the country of destination to set new fares. On January 1, the airlines will gain virtually total freedom to set fares. Unfettered pricing wouldn't mean much without new competitors. In the past few years nearly every country but Britain has refused to license fledgling carriers. Starting in 1993, governments will be forced to approve any startup airline that meets basic safety and financial criteria. The real knockout is a rule that existing European airlines can use any EC airport as a base to fly international routes. For the first time, KLM will be able to open a hub in Hamburg and compete with Lufthansa on routes to Paris, Brussels, and Rome. ''Hubs are the most cost-effective way to serve Europe,'' says Sir Colin Marshall, chief executive of British Airways. On January 1, competition will get even sharper when the EC gives Europe's powerful charter airlines wide freedom to compete in regularly scheduled service from country to country. The deregulation is far from total. Full cabotage -- the right of a foreign airline to fly routes within another country -- has been put off until 1997. Nor is the EC forcing flag carriers to relinquish their rights to scarce takeoff and landing slots. Their grip on the slots keeps competing carriers out of congested airports such as Frankfurt and London's Heathrow.

-- TELECOMMUNICATIONS. Like the flag carriers, Europe's postal, telegraph, and telephone (PTT) companies formed a web of monopolies that inflated the price of equipment and thwarted cross-border services. Sweeping deregulation has broken that grip, setting the stage for big growth in the $100-billion-a-year industry. In 1988 the EC began allowing consumer electronics companies to sell fax machines, phone sets, and other equipment in competition with the PTTs. But the most exciting change has been in services. Data transmission is beginning to get more competitive, and the EC barrier busters even vow to take aim at the PTTs' monopolies on cross-border telephone calls. In data transmission, the EC has opened the market for value-added services that require sophisticated management and software, including airline reservation systems and credit card verification. Beginning January 1, private service firms will also be able to compete with the PTTs in the huge business of moving basic data between computers, such as transferring deposit information between a bank's branches and its central processing center. % The reforms should vastly expand one of the key services of the 1990s: transmitting data across national frontiers. Today, linking a company's computers in several countries is not only expensive but also highly unreliable, since data must be sent via a hodgepodge of national phone networks with different technical standards. Open competition will greatly reduce costs. The EC is also pressing countries to adopt uniform, fully compatible technical standards by 1993. The reforms are a tonic to service providers like EDS. ''The cartel is gone,'' says John Bateman, EDS's chief in northern and Western Europe. Since 1984, EDS's European sales have risen from $20 million to $1.2 billion. The most revolutionary change is at hand. This year Sir Leon Brittan, the EC's commissioner for competition, will submit a proposal to end the PTTs' monopoly on cross-border phone calls. Prices for them are not only far higher than domestic charges but also vary enormously from country to country. A three-minute call from Italy to Ireland costs $4.08, while the same-length call from Britain to Italy is $1.94. Opening cross-border service to U.S.-style deregulation, Sir Leon predicts, would significantly reduce prices.

-- AUTOMOBILES. The EC's spineless automobile policy is 1992's biggest failure. The European auto market has long been a disaster for customers, who pay much higher prices for stripped-down, unreliable autos than either Americans or Japanese pay for more dependable cars. The EC has refused to address either of the two causes of its problems. First, an antitrust exemption curbs cross-border sales. Second, sales of Japanese cars are tightly restricted through import quotas in France, Spain, Italy, Britain, and Portugal. According to a study by the University of Cardiff in Wales, the restrictions make European cars 25% more expensive than similar models in the U.S. or Japan, costing customers $40 billion a year. Under its original plan, the EC agreed to replace the national quotas with an EC-wide limit by 1993, then open the market completely by the mid-1990s. It also voted to exclude from the quotas Japanese cars built in Europe. But the final deal is a sellout to the bloated European auto industry. The EC will retain informal national quotas until the year 2000 and only then open the market. From 1993 until 2000, the informal quotas will rise gradually, allowing Japan's EC market share to grow from 11% to a measly 15.9%. Most outrageous, Japan's EC-built cars will be counted in the quotas. Nor has the EC moved to end the ''block exemption,'' which allows manufacturers to sell their cars solely through single-brand dealers and grants the dealers exclusive territories. Because the block exemption also prohibits someone from buying a large quantity of cars in one country and reselling them in another, it keeps low prices in wide-open competitive markets from spreading to other countries. In Belgium, which has no restrictions on Japanese cars, prices are far lower than in France. The EC permitted the block exemption on condition that price differences among countries wouldn't exceed 12% for the same model. But Ford, Honda, and Renault have models that vary in price by 14% to 42% (see chart), making a mockery of the single-market ideal. Despite clear abuse of the block exemption, the EC is letting it stand until at least 1995.

-- FINANCIAL SERVICES. The single market in financial services is on the way, though it won't be complete until well after 1993. Deregulation is reshaping three broad sectors -- banking, insurance, and investment services -- on separate timetables. In banking, decisive liberalization is arriving January 1. Today countries can bar another member state's bank from setting up a branch. Even if foreign branches are permitted, they can lend only against the branch's often puny capital, not against the bank's total European capital, a policy that severely limits competition. On January 1, banks licensed in one member state get a passport to freely market their services or open branches throughout the EC and lend against their total capital. The European banks will be far freer than those in the U.S., because under the new EC rules, they can grow into Europe-wide financial supermarkets that offer car loans, underwrite securities, and sell insurance. The big bang for commercial and life insurance companies arrives in mid- 1994. Like the banks, EC-wide insurers must now keep substantial capital in every country. They must also follow 12 widely divergent sets of national regulations dictating everything from the product range to pricing to investments. In France, for example, insurers must keep one-third of their capital in government bonds. Starting in 1994, an insurance company operating in all 12 markets will follow just one set of rules: those of their home country. The threat that insurers will establish or relocate headquarters in the most deregulated countries will force member states to drop onerous regulations. Protectionist authorities in Germany and Belgium will no longer be able to block approval for new insurance products. Brian Duperreault, president of overseas property and casualty insurance for AIG, foresees an explosion in fresh offerings: ''In growing areas like environmental insurance and officers' liability, we'll be able to bring products to the marketplace far more quickly.'' Investment services are almost as hamstrung. To expand abroad, investment companies now have to establish a separate, heavily capitalized subsidiary in each EC market. Even then there is no guarantee that the companies can underwrite or sell stocks, since foreign firms or banks are usually barred from local stock exchanges. In France the only solution is to buy one of the 57 brokerage houses protected by a monopoly dating from the Napoleonic era. Starting in 1995, investment firms will be free to set up branches, sans capital, anywhere in the EC and to join the local stock exchange. However, banks will have to wait until 1996 to join the bourses in Belgium, France, and Italy, and until 1999 in Spain, Greece, and Portugal.

-- BORDERS. A Europe free of customs barriers is the most compelling symbol of 1992. The EC is aiming for free circulation of people and commercial traffic, chiefly trucks. The flow of people is already unrestricted in much of Europe. To prepare for 1992, France, Germany, Belgium, Holland, and Luxembourg signed the 1985 Schengen Agreement, a pact that virtually eliminated checks on cars at their common borders. The increase in cross-border shopping is also forcing countries to harmonize their widely divergent value-added taxes. The most significant holdout is Britain. As a safeguard against terrorism, the U.K. wants to screen travelers from other member states who are not EC citizens. Britain is pressuring Ireland, which has no passport controls with the U.K., to retain its border checks with other member states. The EC hopes that its campaign to strengthen security at the Community's external borders will persuade Britain to eliminate passport controls. Even if Britain doesn't budge, Italy, Greece, Portugal, and Spain will become members of the Schengen bloc by 1993, creating a barrier-free market for individuals stretching from Cadiz, Spain, to Flensburg, Germany. Trucks will begin to move freely -- even to England and Ireland -- on January 1. For business, the savings will be significant. The EC estimates that customs paperwork and long delays at borders cost companies $15 billion a year. At the frontier between France and Italy on the Riviera, trucks can be delayed by as long as 24 hours. Companies are already reshaping their distribution systems to take advantage of the single market. Belgian oil producer Petrofina will shift from a network of small depots that serve just one part of a single country to bigger depots from which oil can be trucked to several countries.

-- SOCIAL POLICY. The dark side of 1992 is the abominable labor agenda. So far, the EC gets high marks for not adopting most of the controversial proposals. They aren't an official part of the single-market program. Rather, the leftist member states concocted the social plan in 1989 as a plum for labor, which lambasted the 1992 reforms as strictly pro-business. If adopted, the labor agenda would be 1992 in reverse. It would impose another layer of costs and bureaucracy on Europe's already overregulated labor market. Worse, it would make Europe a less competitive market by spreading restrictive labor laws in each country to all the member states. At the core of the social program are a half-dozen proposals on working time, benefits, subcontracting, and worker consultation. The EC wants to give part-time workers anywhere in Europe the same wages and benefits as full-time employees. All European companies would have to offer a minimum of four weeks' vacation and adhere to a 48-hour workweek. A requirement that part-time workers receive the same benefits as full-timers would cost British food and beverage company Grand Metropolitan, the owner of Burger King, $7 million a year. And many plants regularly run seven days a week in Britain and Ireland. The most noxious proposal would force companies to set up European Work Councils for each business with over 1,000 employees operating in more than one EC country. The councils would consist of a maximum of 30 employees drawn from plants and offices all over Europe. Before taking any action affecting more than one country -- plant closures, say, or major investment plans -- management would have to consult the councils in a face-to-face meeting. The councils couldn't veto management decisions. But the elaborate consultation would slow everything from new product introductions to layoffs. The expense in paperwork and management time would be horrific. Says Bernard Arnold, director for social affairs with Unice, the European employers association: ''I figure the councils would employ 8,000 full-time translators.'' So far Britain has managed to block most of the proposals, which now require unanimous EC approval. However, if the Maastricht Treaty prevails, only a majority vote would be necessary. It's conceivable that Maastricht could introduce Europe to the rewards of a single currency -- then saddle it with even heavier labor regulations. But overall, 1992 has introduced the EC to the exhilaration -- and vast profits -- of cross-border business. Now its companies, not just its enlightened bureaucrats, are leading the cause for unity. They may become the new locomotive that pulls Europe full speed ahead into a single market.

CHART: NOT AVAILABLE CREDIT: FORTUNE TABLE/SOURCE: COMMISSION OF THE EUROPEAN COMMUNITY CAPTION: SAME CARS, DIFFERENT PRICES The 1992 reforms have failed to unify an automobile market fractured by huge price differences. Car prices are measured by an index based on 100. The same Fiesta costs 28% more in Spain than in Italy.

CHART: NOT AVAILABLE CREDIT: FORTUNE TABLE CAPTION: 1992 SCORE CARD