Donald Trump's security policy document presents a misguided assessment of the European Union. The document asserts that open-border policies and what it terms "progressive" agendas represent an grave threat to the continent's identity. Yet, this argument is based on a serious misinterpretation of the situation. The actual danger facing the EU is not societal but economic and technological backwardness.
A Glaring Growth Gap Separating the US and Europe
The data paint a sobering picture. From 2008 and 2023, American economic output surged by 87%, compared to a paltry thirteen and a half percent increase for the European Union. During this period, EU GDP per capita dropped from 76.5% to just 50% of the American figure. Strikingly, even the poorest US state now boasts a greater average income than several leading EU nations like France and Italy.
Today, about 50% of the world’s 50 largest technology firms are American, while a mere four are European.
The Technological Deficit: A Critical Problem
This widening disparity is driven by superior productivity growth in the US, largely due to breakthroughs and higher total factor productivity. The scene of global tech leadership is overwhelmingly US-centric. In the last fifty years, 241 US firms have grown into companies valued at over $10bn, versus just 14 in Europe.
This disparity raises a pressing question: As the competition for future industries like semiconductors, AI, and quantum computing, what is the EU positioned? Most analysts agree it is essentially a contest between two between the United States and China, with European nations entering at a clear disadvantage.
Root Causes of the Continent's Innovation Gap
A number of major factors account for this innovation chasm.
- Financing Ecosystem: The United States has a much more robust and more dynamic system for funding startups. The EU still lacks a true unified investment market, a factor that caps the scale of new firms.
- Bureaucratic Hurdles: Excessive and fragmented regulation hinder Europe. A American entrepreneur can introduce a service under one set of laws to access a consumer base of over 330 million. The EU, despite a larger population size, is divided among 27 different national systems, creating significant internal barriers.
- Cultural Attitudes: Views on entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse was historically met with penalties, whereas in the United States, it is often considered a valuable lesson.
- Military Investment: The United States enjoys a tightly woven innovation pipeline linking defense and academia. The continent's long-term lack of spending in military capabilities has weakened its capacity for pioneering research.
A Path Forward: Reasons for Cautious Optimism
Despite these hurdles, there are reasons for hope. Policymakers are growing more conscious of the existential challenge and have begun to propose substantial change. Notable analyses on EU competitiveness and the single market point to the need for sweeping changes.
With the right incentives and regulatory reforms, Europe's strengths might enable much higher levels of business-led breakthroughs.
Europe still possesses considerable strengths: high-quality human capital, top-tier education systems, and premier labs. Coupled with a large internal market 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 developing next-generation tech, it can still dramatically boost productivity by adopting and adapting innovations from elsewhere.
An Inflection Point
Europe now stands at a critical crossroads. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". To date, Europe's technological decline has been gradual. However, if it fails to take decisive action to tackle its deep-seated problems, today's gradual weakening could give way to a rapid and permanent loss of global economic relevance.
