🔗 Share this article

The recent US security policy document presents a flawed view of Europe. It claims that open-border policies and what it terms "woke" policies represent an grave threat to the continent's identity. However, this argument is based on a fundamental misreading of the reality. The actual challenge confronting Europe is not societal but economic and technological lag.

A Glaring Economic Gap Separating Europe and the US

Statistics paint a stark picture. Between 2008 and 2023, US GDP grew by 87%, while a mere 13.5% increase for the EU. During this period, European income per person dropped from over three-quarters to just half of the US level. Strikingly, even the poorest US state now has a greater average income than major European economies like France and Italy.

Today, roughly 50% of the world’s top fifty technology firms are American, while a mere four are from Europe.

The Technological Deficit: A Critical Problem

The growing disparity stems from superior productivity growth in the United States, fueled by breakthroughs and better use of resources. The landscape of global tech dominance is decidedly US-centric. Over the past five decades, hundreds of American startups have grown into enterprises valued at over $10bn, compared with only fourteen in Europe.

This disparity prompts a vital question: As the competition for tomorrow's sectors like semiconductors, AI, and fusion energy, where does Europe stand? Most analysts agree it is essentially a two-horse race involving the US and China, with European nations starting at a clear disadvantage.

Underlying Factors of the Continent'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. The EU has yet to establish a true capital markets union, a factor that limits the growth potential of new firms.
• Regulatory Fragmentation: Excessive and fragmented rules hinder European business. A American entrepreneur can launch a service under a single set of laws to access a market of hundreds of millions. The EU, despite a larger population, is split among twenty-seven different national regimes, creating huge market obstacles.
• Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse was historically met with stigma, whereas in the United States, it is often seen as a badge of experience.
• Defense Spending: The US benefits from a deeply integrated innovation pipeline linking defense and academia. The continent's long-term lack of spending in defense has eroded its capacity for pioneering research.

A Path Forward: Reasons for Cautious Optimism

Despite these hurdles, one can find reasons for optimism. Policymakers are growing more conscious of the severe threat and have begun to propose substantial change. Notable reports on EU competitiveness and the internal market point to the need for major changes.

With the right policies and rule changes, Europe's strengths might enable much higher levels of commercial innovation.

The continent retains considerable advantages: high-quality human capital, top-tier schools and universities, and world-class research institutions. Coupled with a large internal market and high savings rates, these foundations have the potential to trigger a new wave of investment and entrepreneurship.

Importantly, even if the EU does not become the leader in creating next-generation tech, it can still dramatically boost productivity by implementing and tailoring innovations from elsewhere.

An Inflection Point

Europe now faces a critical crossroads. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". So far, Europe's technological decline has been steady. However, without bold steps to address its deep-seated problems, today's gradual weakening could give way to a sudden and irreversible decline in world influence.