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The recent US security policy document offers a flawed assessment of Europe. The document asserts that unrestrained immigration and what it terms "progressive" policies represent an existential risk to the continent's identity. Yet, this argument rests on a serious misinterpretation of the situation. The true danger facing the EU is not societal but economic and technological backwardness.

The Stark Economic Gap Separating the US and Europe

Statistics paint a sobering contrast. From 2008 and 2023, American economic output surged by 87%, while a paltry thirteen and a half percent increase for the EU. Over this period, EU GDP per capita dropped from over three-quarters to just 50% of the American figure. Remarkably, even Mississippi now has a greater average income than several leading European economies like Italy and France.

Currently, roughly half of the world’s 50 largest tech companies are American, while only four are from Europe.

The Technological Deficit: A Critical Problem

This widening economic gap stems from superior productivity growth in the United States, fueled by breakthroughs and higher total factor productivity. The scene of global tech dominance is decidedly US-centric. In the last five decades, 241 US firms have scaled into enterprises valued at more than ten billion dollars, versus just 14 in Europe.

This gap prompts a vital question: In the race for future industries like semiconductors, AI, and fusion energy, what is Europe positioned? Experts widely concede it is essentially a contest between two involving the US and China, with Europe entering at a clear handicap.

Root Causes of the Continent's Innovation Gap

A number of major factors account for this technological divide.

• Venture Capital: The United States has a much more robust and agile system for funding startups. Europe still lacks a genuine capital markets union, a factor that limits the growth potential of emerging companies.
• Regulatory Fragmentation: Complex and divided rules hinder European business. A American entrepreneur can launch a service under a single set of laws to access a consumer base of hundreds of millions. The EU, despite a larger population, is split among 27 different national systems, creating huge internal barriers.
• Cultural Attitudes: Attitudes toward risk-taking differ sharply. In parts of Europe, business failure was once viewed with penalties, whereas in the United States, it is often seen as a valuable lesson.
• Military Investment: The United States enjoys a tightly woven academic-military-industrial complex. Europe's chronic underinvestment in defense has weakened its ability in pioneering research.

A Path Forward: Grounds for Hopefulness

In spite of these challenges, one can find causes for optimism. Policymakers are growing more conscious of the existential challenge and have begun to propose substantial change. Key analyses on EU competitiveness and the single market highlight the need for sweeping changes.

With the right policies and rule changes, Europe's strengths could support far greater degrees of commercial innovation.

The continent retains considerable advantages: high-quality human capital, excellent education systems, and premier labs. Coupled with a vast domestic consumer base and substantial household savings, these elements have the potential to trigger a surge of venture creation.

Crucially, even if the EU does not become the leader in creating cutting-edge tech, it can still dramatically increase productivity by implementing and tailoring innovations from elsewhere.

An Inflection Point

Europe now stands at a critical moment. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". So far, Europe's technological decline has been steady. However, without decisive action to address its structural weaknesses, today's slow erosion could give way to a sudden and irreversible loss of global economic relevance.