🔗 Share this article

The recent US national security strategy offers a flawed assessment of Europe. The document asserts that open-border policies and so-called "progressive" policies pose an grave threat to the continent's identity. However, this argument rests on a serious misreading of the reality. The true danger confronting the EU is not societal but technological and economic backwardness.

The Stark Economic Divide Between the US and Europe

The data reveal a sobering contrast. From 2008 and 2023, US GDP grew by 87%, while a mere thirteen and a half percent increase for the EU. Over this time, EU GDP per capita dropped from over three-quarters to just 50% of the American figure. Strikingly, even the poorest US state now has a higher per capita income than several leading EU nations like Italy and France.

Currently, about 50% of the world’s 50 largest technology firms are US-based, while only four are from Europe.

The Innovation Shortfall: A Critical Question

The growing economic gap stems from superior productivity growth in the United States, fueled by technological innovation and better use of resources. The landscape of global tech dominance is overwhelmingly US-centric. In the last five decades, 241 US firms have scaled into companies valued at more than ten billion dollars, compared with just 14 in the European continent.

This disparity raises a pressing question: In the race for future industries like AI, semiconductors, and quantum computing, what is the EU stand? Most analysts agree it is largely a two-horse race involving the United States and China, with European nations starting at a clear handicap.

Root Causes of Europe's Technological Lag

A number of key factors explain this technological divide.

• Financing Ecosystem: The United States has a much more robust and agile system for financing new ventures. The EU has yet to establish a genuine capital markets union, a factor that caps the growth potential of new firms.
• Regulatory Fragmentation: Complex and divided regulation hamper Europe. A American entrepreneur can launch a product under a single set of laws to access a market of hundreds of millions. The EU, despite a bigger population size, is divided among 27 separate regimes, creating significant market obstacles.
• Mindset Differences: Views on entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse was once viewed with penalties, whereas in the United States, it is often seen as a badge of experience.
• Military Investment: The United States enjoys a deeply integrated innovation pipeline linking defense and academia. The continent's long-term lack of spending in military capabilities has eroded its capacity for breakthrough innovation.

The Road Ahead: Reasons for Cautious Optimism

In spite of these hurdles, there are reasons for hope. Policymakers are increasingly aware of the existential challenge and have begun to propose serious reform. Key reports on EU competitiveness and the single market highlight the need for sweeping changes.

Given appropriate incentives and rule changes, Europe's strengths might enable much higher levels of commercial innovation.

The continent retains considerable strengths: skilled human capital, excellent schools and universities, and premier research institutions. Coupled with a vast domestic consumer base and high savings rates, these foundations could unleash a new wave of venture creation.

Crucially, even if Europe does not become the leader in developing cutting-edge technologies, it can still dramatically increase economic output by implementing and tailoring advancements from other regions.

A Critical Juncture

Europe now faces a decisive moment. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". To date, Europe's technological decline has been steady. But, without decisive action to address its structural weaknesses, today's gradual weakening could turn into a sudden and irreversible loss of world influence.