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The recent US security policy document offers a misguided assessment of the European Union. The document asserts that unrestrained immigration and what it terms "progressive" agendas pose an existential threat to the continent's identity. Yet, this argument is based on a fundamental misreading of the situation. The actual challenge confronting the EU is not societal but economic and technological backwardness.

The Stark Economic Divide Separating Europe and the US

The data paint a stark contrast. From 2008 and 2023, American economic output grew by eighty-seven percent, compared to a paltry thirteen and a half percent growth for the EU. Over this period, European income per person fell from over three-quarters to just 50% of the US level. Strikingly, even the poorest US state now has a higher per capita income than major European economies like France and Italy.

Currently, roughly half of the world’s 50 largest technology firms are US-based, while a mere four are from Europe.

The Technological Deficit: The Core Problem

This widening economic gap stems from superior productivity growth in the United States, largely due to technological innovation and higher total factor productivity. The landscape of world technology leadership is overwhelmingly US-centric. In the last five decades, hundreds of American startups have grown into companies valued at over $10bn, compared with only fourteen in the European continent.

This disparity prompts a pressing question: As the competition for future industries like semiconductors, AI, and fusion energy, where does Europe stand? Experts widely agree it is essentially a contest between two involving the US and China, with Europe starting at a clear disadvantage.

Underlying Factors of Europe's Technological Lag

Several major factors explain this technological divide.

• Financing Ecosystem: The United States has a far deeper and more dynamic system for funding startups. Europe still lacks a true capital markets union, a factor that limits the growth potential of new firms.
• Bureaucratic Hurdles: Excessive and fragmented rules hinder Europe. A US startup can introduce a product under one regulatory framework to access a market of over 330 million. The EU, despite a larger population size, is divided among 27 separate regimes, creating huge market obstacles.
• Mindset Differences: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, business failure was historically viewed with stigma, whereas in the US, it is often seen as a valuable lesson.
• Military Investment: The United States enjoys a deeply integrated academic-military-industrial complex. The continent's long-term lack of spending in defense has eroded its ability in pioneering research.

A Path Forward: Grounds for Cautious Optimism

Despite these hurdles, there are causes for optimism. Policymakers are growing more conscious of the severe threat and have started to propose substantial change. Key reports on European competitiveness and the single market point to the necessity of major changes.

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

The continent still possesses considerable strengths: high-quality workforce, excellent schools and universities, and premier research institutions. Coupled with a vast domestic consumer base and substantial household savings, these foundations could unleash a new wave of venture creation.

Crucially, even if the EU does not take the lead in creating next-generation tech, it can still significantly increase productivity by adopting and adapting innovations from other regions.

A Critical Juncture

Europe now faces a critical moment. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". So far, Europe's slide in innovation has been steady. However, if it fails to take decisive action to tackle its deep-seated problems, today's slow erosion could give way to a sudden and irreversible decline in world influence.