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The recent US national security strategy offers a misguided view of Europe. It claims that unrestrained immigration and so-called "woke" agendas pose an grave risk to European civilization. However, this perspective is based on a serious misinterpretation of the reality. The true danger confronting the EU is not societal but economic and technological backwardness.

A Glaring Growth Divide Separating the US and Europe

Statistics paint a sobering picture. From 2008 and 2023, US GDP grew by 87%, while a paltry thirteen and a half percent growth for the EU. Over this period, EU GDP per capita dropped from 76.5% to just half of the US level. Strikingly, even Mississippi now boasts a higher per capita income than major European economies like France and Italy.

Today, about 50% of the world’s top fifty technology firms are US-based, while only four are from Europe.

The Innovation Deficit: A Critical Problem

This widening economic gap stems from superior productivity growth in the US, largely due to technological innovation and higher total factor productivity. The landscape of global tech dominance is decidedly American. In the last five decades, 241 US firms have grown into enterprises valued at over $10bn, compared with only fourteen in the European continent.

This gap raises a vital question: In the race for future industries like AI, semiconductors, and quantum computing, what is Europe positioned? Most analysts concede it is essentially a contest between two involving the US and China, with Europe entering at a significant disadvantage.

Root Causes of Europe's Technological Lag

A number of major reasons explain this innovation chasm.

• Financing Ecosystem: The US boasts a much more robust and agile system for funding startups. Europe still lacks a genuine capital markets union, which limits the scale of emerging companies.
• Regulatory Fragmentation: Excessive and fragmented regulation hamper Europe. 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 bigger population, is divided among twenty-seven different national regimes, creating significant market obstacles.
• Cultural Attitudes: Attitudes toward risk-taking vary greatly. In parts of Europe, business failure was once met with penalties, whereas in the United States, it is often seen as a valuable lesson.
• Military Investment: The US benefits from a tightly woven academic-military-industrial complex. Europe's long-term lack of spending in military capabilities has eroded its capacity for pioneering research.

A Path Forward: Grounds for Cautious Optimism

In spite of these hurdles, there are reasons for hope. Policymakers are increasingly aware of the severe threat and have started to advance substantial change. Notable analyses on EU competitiveness and the single market highlight the need for sweeping changes.

Given appropriate policies and rule changes, Europe's strengths might enable much higher degrees of business-led breakthroughs.

The continent retains significant advantages: high-quality human capital, excellent education systems, and premier research institutions. Alongside a large internal market and substantial household savings, these foundations have the potential to unleash a new wave of investment and entrepreneurship.

Importantly, even if Europe does not become the leader in creating cutting-edge tech, it can still dramatically boost economic output by implementing and tailoring innovations from other regions.

A Critical Juncture

Europe now faces a decisive moment. As the saying goes, economic erosion often happens "gradually and then suddenly". To date, the continent's technological decline has been steady. But, if it fails to take decisive action to address its deep-seated problems, today's gradual weakening could give way to a sudden and irreversible decline in global economic relevance.