Donald Trump's security policy document presents a flawed view of the European Union. It claims that open-border policies and so-called "progressive" agendas represent an existential threat to European civilization. Yet, this perspective is based on a serious misreading of the reality. The actual danger facing Europe is not societal but economic and technological lag.
A Glaring Economic Gap Between the US and Europe
The data reveal a sobering picture. Between 2008 and 2023, American economic output surged by 87%, while a paltry 13.5% increase for the European Union. During this time, European income per person dropped from 76.5% to just half of the US level. Remarkably, even the poorest US state now has a higher per capita income than major European economies like Italy and France.
Today, about half of the global top fifty tech companies are American, while only four are European.
The Technological Shortfall: A Critical Problem
This widening disparity stems from superior productivity growth in the United States, fueled by technological innovation and higher total factor productivity. The scene of global tech dominance is decidedly American. Over the past fifty years, hundreds of American startups have grown into companies valued at over $10bn, compared with just 14 in the European continent.
This gap prompts a pressing question: As the competition for tomorrow's sectors like AI, semiconductors, and quantum computing, what is Europe positioned? Most analysts agree it is largely a two-horse race involving the US and China, with Europe starting at a significant handicap.
Root Causes of the Continent's Innovation Gap
Several major reasons account for this technological divide.
- Venture Capital: The US boasts a much more robust and agile system for funding startups. The EU has yet to establish a true capital markets union, which limits the growth potential of emerging companies.
- Regulatory Fragmentation: Excessive and fragmented rules hamper Europe. A US startup can launch a product under one regulatory framework to access a market of over 330 million. The European Union, despite a bigger population size, is split among twenty-seven different national systems, creating significant internal barriers.
- Mindset Differences: Attitudes toward risk-taking vary greatly. In parts of Europe, business failure was once viewed with stigma, whereas in the United States, it is often seen as a valuable lesson.
- Military Investment: The US benefits from a deeply integrated innovation pipeline linking defense and academia. The continent's chronic underinvestment in military capabilities has weakened its ability in pioneering research.
A Path Forward: Reasons for Cautious Optimism
Despite these challenges, one can find reasons for optimism. European leaders are increasingly aware of the severe threat and have begun to propose serious reform. Notable analyses on European competitiveness and the single market point to the necessity of sweeping reforms.
Given appropriate policies and regulatory reforms, these assets might enable much higher degrees of commercial innovation.
Europe retains significant strengths: skilled workforce, top-tier education systems, and premier research institutions. 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 take the lead in creating next-generation technologies, it can still dramatically increase productivity by implementing and tailoring advancements from elsewhere.
An Inflection Point
Europe now faces a decisive moment. To paraphrase a famous line, decline often happens "slowly, then all at once". To date, Europe's technological decline has been gradual. But, if it fails to take decisive action to address its structural weaknesses, today's slow erosion could turn into a sudden and irreversible loss of world influence.
