Donald Trump's security policy document offers a misguided assessment of Europe. The document asserts that open-border policies and what it terms "progressive" agendas pose an grave risk to European civilization. Yet, this argument is based on a serious misinterpretation of the reality. The true challenge facing the EU is not cultural but economic and technological lag.
A Glaring Growth Gap Separating the US and Europe
The data reveal a sobering picture. From 2008 and 2023, American economic output grew by 87%, compared to a paltry 13.5% increase for the EU. During this time, EU GDP per capita fell from over three-quarters 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 France and Italy.
Today, about 50% of the world’s 50 largest technology firms are American, while only four are European.
The Innovation Deficit: The Core Problem
This widening disparity stems from superior efficiency gains in the United States, fueled by breakthroughs and higher total factor productivity. The landscape of world technology leadership is decidedly US-centric. In the last five decades, hundreds of American startups have scaled into companies valued at over $10bn, compared with only fourteen in Europe.
This disparity prompts a pressing issue: As the competition for tomorrow's sectors like AI, semiconductors, and quantum computing, where does the EU stand? Experts widely concede it is essentially a contest between two involving the US and China, with Europe entering at a significant handicap.
Underlying Factors of Europe's Technological Lag
A number of key factors explain this technological divide.
- Financing Ecosystem: The US boasts a far deeper and agile network for funding startups. Europe still lacks a true capital markets union, a factor that limits the scale of emerging companies.
- Regulatory Fragmentation: Complex and divided rules hamper Europe. A US startup can launch a service under a single set of laws to access a consumer base of over 330 million. The EU, despite a larger population size, is divided among 27 separate regimes, creating significant market obstacles.
- Mindset Differences: Views on risk-taking differ sharply. In parts of Europe, business failure was once met with stigma, whereas in the United States, it is often seen as a valuable lesson.
- Military Investment: The US benefits from a deeply integrated academic-military-industrial complex. Europe's long-term lack of spending in military capabilities has weakened its ability in pioneering research.
The Road Ahead: Reasons for Cautious Optimism
Despite these challenges, one can find causes for optimism. Policymakers are increasingly aware of the severe threat and have started to advance substantial change. Key analyses on European competitiveness and the single market highlight the need for major changes.
With the right policies and regulatory reforms, Europe's strengths might enable far greater levels of business-led breakthroughs.
Europe retains considerable advantages: skilled human capital, top-tier education systems, and world-class 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 developing cutting-edge technologies, it can still significantly boost productivity by adopting and adapting innovations from other regions.
An Inflection Point
Europe now faces a critical moment. As the saying goes, economic erosion often happens "slowly, then all at once". So far, Europe's technological decline has been steady. However, 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.
