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The recent US national security strategy offers a misguided assessment of Europe. The document asserts that unrestrained immigration and what it terms "progressive" policies represent an existential threat to European civilization. However, this perspective is based on a fundamental misreading of the reality. The actual danger facing Europe is not societal but technological and economic lag.

A Glaring Growth Gap Separating the US and Europe

Statistics paint a sobering contrast. Between 2008 and 2023, US GDP grew by 87%, compared to a mere 13.5% increase for the EU. During this period, European income per person fell from 76.5% to just half of the US level. Strikingly, even the poorest US state now has a greater average income than several leading European economies like France and Italy.

Currently, about 50% of the world’s 50 largest technology firms are American, while only four are European.

The Innovation Deficit: The Core Question

The growing disparity is driven by superior efficiency gains in the United States, largely due to breakthroughs and better use of resources. The landscape of world technology leadership is decidedly US-centric. Over the past fifty years, hundreds of American startups have scaled into companies valued at over $10bn, versus just 14 in the European continent.

This disparity raises a vital question: In the race for future industries like semiconductors, AI, and quantum computing, where does the EU stand? Most analysts agree it is essentially a contest between two involving the United States and China, with European nations entering at a significant handicap.

Underlying Factors of Europe's Innovation Gap

A number of key reasons explain this innovation chasm.

• Financing Ecosystem: The US boasts a much more robust and agile network for funding startups. Europe has yet to establish a true capital markets union, which caps the growth potential of new firms.
• Regulatory Fragmentation: Excessive and fragmented regulation hinder Europe. A American entrepreneur can introduce a product under one set of laws to access a consumer base of over 330 million. The European Union, despite a larger population size, is split among 27 different national regimes, creating significant market obstacles.
• Cultural Attitudes: Views on entrepreneurial failure vary greatly. In parts of Europe, business failure was once met with penalties, whereas in the US, it is often seen as a badge of experience.
• Defense Spending: The US benefits from a tightly woven academic-military-industrial complex. The continent's long-term lack of spending in military capabilities has weakened its capacity for breakthrough innovation.

The Road Ahead: Reasons for Hopefulness

Despite 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 European competitiveness and the internal market highlight the necessity of major changes.

With the right incentives and rule changes, Europe's strengths might enable far greater degrees of commercial innovation.

Europe still possesses significant strengths: high-quality human capital, top-tier schools and universities, and premier research institutions. Alongside a vast domestic consumer base and high savings rates, these foundations could trigger a surge of investment and entrepreneurship.

Crucially, even if the EU does not take the lead in developing cutting-edge technologies, it can still dramatically boost productivity by adopting and adapting advancements from other regions.

An Inflection Point

The European Union now stands at 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. However, without bold steps to tackle its structural weaknesses, today's gradual weakening could give way to a rapid and permanent decline in global economic relevance.