🔗 Share this article

The recent US security policy document presents a misguided assessment of Europe. It claims that unrestrained immigration and so-called "progressive" agendas represent an grave threat to European civilization. However, this argument rests on a fundamental misreading of the situation. The true challenge facing the EU is not societal but technological and economic lag.

A Glaring Growth Divide Between Europe and the US

Statistics reveal a stark contrast. Between 2008 and 2023, American economic output surged by 87%, while a paltry thirteen and a half percent increase for the EU. Over this period, European income per person fell from 76.5% to just 50% of the US level. Strikingly, even the poorest US state now has a greater average income than several leading EU nations like France and Italy.

Today, about half of the global top fifty technology firms are American, while a mere four are from Europe.

The Innovation Deficit: A Critical Question

The growing economic gap stems from superior efficiency gains in the US, fueled by breakthroughs and better use of resources. The scene of global tech leadership is decidedly US-centric. In the last fifty years, hundreds of American startups have grown into enterprises valued at more than $10bn, versus only fourteen in the European continent.

This disparity raises a pressing issue: In the race for future industries like semiconductors, AI, and quantum computing, what is the EU positioned? Experts widely agree it is essentially a contest between two involving the US and China, with Europe starting at a clear disadvantage.

Root Causes of the Continent's Technological Lag

A number of key reasons explain this technological divide.

• Financing Ecosystem: The US boasts a far deeper and more dynamic network for financing new ventures. The EU has yet to establish a genuine capital markets union, which caps the scale of new firms.
• Regulatory Fragmentation: Complex and divided rules hinder Europe. A American entrepreneur can introduce a product under a single regulatory framework to access a market of hundreds of millions. The European Union, despite a bigger population size, is split among twenty-seven different national regimes, creating significant internal barriers.
• Mindset Differences: Views on risk-taking vary greatly. In some EU nations, business failure was historically viewed with penalties, whereas in the US, it is often seen as a badge of experience.
• Defense Spending: The US benefits from a tightly woven innovation pipeline linking defense and academia. Europe's chronic underinvestment in defense has weakened its capacity for pioneering research.

A Path Forward: Grounds for Cautious Optimism

In spite of these challenges, one can find causes for optimism. European leaders are growing more conscious of the severe threat and have started to advance substantial change. Key analyses on EU competitiveness and the internal market highlight the need for major changes.

Given appropriate policies and regulatory reforms, these assets could support far greater levels of commercial innovation.

Europe still possesses significant advantages: high-quality human capital, top-tier education systems, and premier research institutions. Coupled with a large internal market and high savings rates, these foundations could trigger a new wave of venture creation.

Crucially, even if the EU does not become the leader in creating next-generation technologies, it can still significantly increase economic output by implementing and tailoring innovations from other regions.

An Inflection Point

The European Union now faces a critical crossroads. As the saying goes, economic erosion often happens "slowly, then all at once". To date, Europe's slide in innovation has been gradual. But, if it fails to take decisive action to address its deep-seated problems, today's gradual weakening could turn into a sudden and irreversible loss of global economic relevance.