🔗 Share this article

The recent US national security strategy offers a misguided assessment of Europe. The document asserts that open-border policies and so-called "progressive" agendas pose an existential risk to European civilization. Yet, this perspective is based on a serious misreading of the situation. The true danger confronting the EU is not societal but economic and technological lag.

The Stark Economic Divide Between Europe and the US

The data reveal a stark picture. From 2008 and 2023, American economic output grew by 87%, compared to a mere thirteen and a half percent growth for the EU. During this period, European income per person fell from 76.5% to just half of the American figure. Remarkably, even Mississippi now has a greater average income than several leading European economies like Italy and France.

Currently, about half of the global 50 largest tech companies are American, while a mere four are European.

The Technological Deficit: The Core Question

The growing disparity is driven by stronger efficiency gains in the United States, fueled by breakthroughs and higher total factor productivity. The scene of global tech dominance is overwhelmingly US-centric. In the last five decades, hundreds of American startups have scaled into enterprises valued at more than ten billion dollars, compared with only fourteen in Europe.

This disparity raises a pressing question: In the race for future industries like semiconductors, AI, and quantum computing, what is the EU positioned? Experts widely concede it is largely a two-horse race between the US and China, with Europe starting at a clear disadvantage.

Underlying Factors of the Continent's Innovation Gap

A number of key reasons explain this technological divide.

• Financing Ecosystem: The US boasts a much more robust and more dynamic network for financing new ventures. The EU has yet to establish a genuine capital markets union, a factor that limits the growth potential of new firms.
• Bureaucratic Hurdles: Excessive and fragmented rules hinder Europe. A US startup can launch a service under one set of laws to access a market of over 330 million. The EU, despite a larger population, is split among twenty-seven different national systems, creating huge market obstacles.
• Mindset Differences: Attitudes toward risk-taking vary greatly. In parts of Europe, business failure was historically viewed with penalties, whereas in the US, it is often seen as a valuable lesson.
• Defense Spending: The US benefits from a tightly woven innovation pipeline linking defense and academia. Europe's chronic underinvestment in defense has weakened its ability in breakthrough innovation.

A Path Forward: Reasons for Hopefulness

In spite of these challenges, one can find reasons for optimism. Policymakers are increasingly aware of the severe threat and have begun to advance substantial change. Notable reports on European competitiveness and the internal market highlight the necessity of major changes.

Given appropriate incentives and regulatory reforms, these assets might enable far greater levels of business-led breakthroughs.

The continent retains considerable strengths: skilled workforce, top-tier education systems, and world-class research institutions. Coupled with a vast domestic consumer base and high savings rates, these elements could unleash a surge of investment and entrepreneurship.

Importantly, even if Europe does not take the lead in creating cutting-edge technologies, it can still dramatically boost economic output by implementing and tailoring innovations from elsewhere.

An Inflection Point

Europe now faces a decisive crossroads. As the saying goes, decline often happens "gradually and then suddenly". To date, the continent's slide in innovation has been gradual. But, if it fails to take bold steps to address its structural weaknesses, today's gradual weakening could turn into a sudden and irreversible loss of global economic relevance.