🔗 Share this article

Donald Trump's security policy document offers a flawed view of the European Union. The document asserts that open-border policies and what it terms "woke" agendas represent an grave risk to the continent's identity. Yet, this perspective is based on a serious misreading of the reality. The true danger confronting Europe is not societal but economic and technological backwardness.

The Stark Economic Gap Separating Europe and the US

The data paint a stark contrast. Between 2008 and 2023, American economic output surged by 87%, compared to a paltry 13.5% growth for the European Union. During this time, European income per person dropped from 76.5% to just 50% of the American figure. Remarkably, even the poorest US state now has a higher per capita income than several leading European economies like France and Italy.

Currently, roughly 50% of the global 50 largest tech companies are American, while only four are European.

The Technological Shortfall: A Critical Question

The growing economic gap is driven by stronger productivity growth in the United States, fueled by breakthroughs and higher total factor productivity. The landscape of world technology dominance is decidedly US-centric. In the last five decades, 241 US firms have grown into companies valued at over ten billion dollars, compared with just 14 in Europe.

This disparity raises a pressing question: As the competition for tomorrow's sectors like semiconductors, AI, and fusion energy, what is Europe positioned? Experts widely agree it is largely a two-horse race involving the US and China, with European nations starting at a clear disadvantage.

Underlying Factors of Europe's Innovation Gap

A number of key factors account for this technological divide.

• Financing Ecosystem: The US boasts a much more robust and more dynamic system for financing new ventures. Europe still lacks a true unified investment market, a factor that caps the growth potential of new firms.
• Regulatory Fragmentation: Complex and divided rules hamper Europe. A US startup can launch a product under a single set of laws to access a consumer base of hundreds of millions. The European Union, despite a larger population size, is divided among 27 separate systems, creating significant market obstacles.
• Mindset Differences: Views on risk-taking vary greatly. In parts of Europe, business failure was once met with penalties, whereas in the United States, it is often considered a valuable lesson.
• 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 ability in pioneering research.

A Path Forward: Reasons for Hopefulness

Despite these challenges, one can find causes for hope. Policymakers are growing more conscious of the severe threat and have started to advance substantial change. Notable analyses on EU competitiveness and the single market point to the need for sweeping changes.

With the right incentives and rule changes, these assets could support much higher levels of business-led breakthroughs.

The continent still possesses considerable strengths: skilled workforce, top-tier education systems, and premier labs. Coupled with a vast domestic consumer base and high savings rates, these foundations have the potential to trigger a surge of venture creation.

Importantly, even if the EU does not become the leader in creating cutting-edge technologies, it can still dramatically boost productivity by implementing and tailoring advancements from elsewhere.

A Critical Juncture

The European Union now stands at a critical crossroads. As the saying goes, decline often happens "gradually and then suddenly". To date, Europe's technological decline has been gradual. However, without decisive action to address its deep-seated problems, today's slow erosion could turn into a sudden and irreversible loss of global economic relevance.