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The recent US security policy document offers a misguided assessment of the European Union. It claims that open-border policies and what it terms "progressive" policies pose an existential risk to European civilization. However, this argument rests on a serious misinterpretation of the reality. The actual challenge facing the EU is not societal but economic and technological lag.

A Glaring Growth Gap Between Europe and the US

Statistics reveal a sobering picture. From 2008 and 2023, American economic output grew by 87%, while a paltry thirteen and a half percent growth for the European Union. Over this time, EU GDP per capita dropped from over three-quarters to just 50% of the American figure. Remarkably, even the poorest US state now has a greater average income than major European economies like France and Italy.

Today, about 50% of the world’s 50 largest tech companies are American, while only four are European.

The Innovation Shortfall: A Critical Problem

This widening disparity is driven by superior efficiency gains in the United States, fueled by technological innovation and higher total factor productivity. The landscape of global tech leadership is decidedly American. In the last fifty years, 241 US firms have grown into enterprises valued at over $10bn, compared with only fourteen in Europe.

This disparity raises a pressing issue: In the race for tomorrow's sectors like semiconductors, AI, and fusion energy, what is the EU stand? Experts widely concede it is essentially a contest between two involving the United States and China, with Europe entering at a clear handicap.

Root Causes of Europe's Technological Lag

Several major factors explain this innovation chasm.

• Venture Capital: The US boasts a far deeper and agile network for financing new ventures. The EU has yet to establish a genuine unified investment market, which limits the growth potential of emerging companies.
• Bureaucratic Hurdles: Excessive and fragmented regulation hamper Europe. A American entrepreneur can introduce a service under one regulatory framework to access a market of over 330 million. The EU, despite a larger population, is split among 27 separate regimes, creating huge internal barriers.
• Mindset Differences: Attitudes toward risk-taking vary greatly. In parts of Europe, a startup's collapse was once met with stigma, whereas in the United States, it is often considered a badge of experience.
• Military Investment: The United States enjoys a tightly woven innovation pipeline linking defense and academia. Europe's long-term lack of spending in military capabilities has eroded its capacity for pioneering research.

The Road Ahead: Grounds for Hopefulness

Despite these hurdles, one can find reasons for hope. Policymakers are increasingly aware of the existential challenge and have begun to propose serious reform. Notable reports on EU competitiveness and the internal market highlight the need for major changes.

With the right policies and regulatory reforms, Europe's strengths could support far greater levels of business-led breakthroughs.

Europe still possesses considerable strengths: skilled workforce, top-tier education systems, and premier labs. Coupled with a large internal market and high savings rates, these elements could trigger a new wave of investment and entrepreneurship.

Importantly, even if Europe does not become the leader in developing next-generation technologies, it can still significantly boost economic output by adopting and adapting advancements from elsewhere.

A Critical Juncture

The European Union now stands at a critical crossroads. As the saying goes, economic erosion often happens "gradually and then suddenly". So far, Europe's slide in innovation has been gradual. But, without decisive action to address its deep-seated problems, today's slow erosion could give way to a rapid and permanent loss of global economic relevance.