🔗 Share this article

Donald Trump's national security strategy presents a flawed assessment of the European Union. It claims that unrestrained immigration and so-called "progressive" agendas pose an existential risk to the continent's identity. However, this perspective is based on a fundamental misreading of the situation. The true challenge confronting Europe is not societal but economic and technological backwardness.

A Glaring Growth Gap Between Europe and the US

The data paint a sobering picture. Between 2008 and 2023, American economic output surged by eighty-seven percent, compared to a paltry thirteen and a half percent increase for the European Union. During this time, EU GDP per capita dropped from over three-quarters to just half of the American figure. Remarkably, even Mississippi now has a greater average income than several leading EU nations like Italy and France.

Today, about 50% of the global 50 largest tech companies are US-based, while only four are European.

The Technological Deficit: The Core Problem

This widening disparity stems from stronger productivity growth in the United States, fueled by technological innovation and higher total factor productivity. The scene of global tech dominance is overwhelmingly American. Over the past five decades, 241 US firms have scaled into companies valued at more than $10bn, versus only fourteen in Europe.

This gap raises a vital question: In the race for future industries like AI, semiconductors, and quantum computing, what is Europe positioned? Most analysts concede it is essentially a two-horse race between the United States and China, with Europe starting at a clear disadvantage.

Root Causes of Europe's Technological Lag

A number of key factors explain this innovation chasm.

• Financing Ecosystem: The US boasts a much more robust and agile system for financing new ventures. Europe has yet to establish a genuine unified investment market, a factor that caps the growth potential of emerging companies.
• Regulatory Fragmentation: Complex and divided rules hamper Europe. A American entrepreneur can introduce a product under one regulatory framework to access a consumer base of over 330 million. The EU, despite a larger population size, is divided among twenty-seven different national regimes, creating significant internal barriers.
• Cultural Attitudes: Views on risk-taking vary greatly. In some EU nations, a startup's collapse was historically viewed with penalties, whereas in the United States, it is often considered a badge of experience.
• Military Investment: The US benefits from a deeply integrated innovation pipeline linking defense and academia. The continent's long-term lack of spending in military capabilities has eroded its ability in pioneering research.

The Road Ahead: Grounds for Hopefulness

Despite these challenges, there are causes for hope. Policymakers are growing more conscious of the existential challenge and have begun to advance substantial change. Key analyses on European competitiveness and the single market highlight the need for sweeping changes.

With the right policies and regulatory reforms, Europe's strengths might enable much higher degrees of business-led breakthroughs.

Europe retains significant advantages: skilled human capital, top-tier education systems, and world-class research institutions. Coupled with a large internal market and substantial household savings, these elements have the potential to trigger a new wave of investment and entrepreneurship.

Importantly, even if the EU does not take the lead in creating cutting-edge technologies, it can still significantly boost productivity by adopting and adapting innovations from elsewhere.

An Inflection Point

The European Union now faces a decisive moment. As the saying goes, economic erosion often happens "gradually and then suddenly". To date, Europe's slide in innovation has been steady. But, if it fails to take decisive action to tackle its deep-seated problems, today's slow erosion could turn into a sudden and irreversible loss of global economic relevance.