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The recent US national security strategy offers a misguided view of the European Union. The document asserts that unrestrained immigration and what it terms "progressive" policies pose an existential risk to European civilization. Yet, this perspective is based on a serious misinterpretation of the reality. The actual danger facing the EU is not cultural but economic and technological lag.

The Stark Economic Gap Separating Europe and the US

Statistics reveal a stark contrast. From 2008 and 2023, American economic output grew by 87%, compared to a paltry 13.5% growth for the European Union. During this period, European income per person dropped from 76.5% to just half of the American figure. Strikingly, even Mississippi now boasts a higher per capita income than several leading EU nations like France and Italy.

Today, roughly 50% of the global top fifty tech companies are US-based, while a mere four are European.

The Innovation Deficit: A Critical Question

This widening economic gap stems from stronger efficiency gains in the US, largely due to technological innovation and higher total factor productivity. The landscape of world technology dominance is overwhelmingly American. Over the past fifty years, 241 US firms have scaled into enterprises valued at over $10bn, compared with just 14 in Europe.

This disparity prompts a pressing issue: As the competition for future industries like AI, semiconductors, and fusion energy, where does the EU stand? Most analysts concede it is largely a contest between two involving the United States and China, with European nations starting at a significant handicap.

Underlying Factors of Europe's Technological Lag

A number of major reasons explain this innovation chasm.

• Venture Capital: The United States has a far deeper and more dynamic system for financing new ventures. The EU has yet to establish a true capital markets union, which caps the growth potential of new firms.
• Regulatory Fragmentation: Complex and divided 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 European Union, despite a bigger population size, is split among twenty-seven different national systems, creating significant market obstacles.
• Cultural Attitudes: Views on entrepreneurial failure 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 valuable lesson.
• Defense Spending: The United States enjoys a deeply integrated innovation pipeline linking defense and academia. Europe's long-term lack of spending in defense has eroded its capacity for breakthrough innovation.

The Road Ahead: Reasons for Hopefulness

In spite of these hurdles, there are reasons for hope. European leaders are growing more conscious of the existential challenge and have started to propose substantial change. Notable analyses on European competitiveness and the single market highlight the need for sweeping changes.

With the right policies and rule changes, these assets could support much higher degrees of commercial innovation.

The continent retains considerable advantages: skilled human capital, top-tier education systems, and world-class research institutions. Alongside a vast domestic consumer base and high savings rates, these elements could trigger a new wave of venture creation.

Importantly, even if the EU does not take the lead in developing next-generation tech, it can still significantly increase productivity by implementing and tailoring innovations from elsewhere.

A Critical Juncture

Europe now faces a critical moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, the continent's slide in innovation has been gradual. However, if it fails to take bold steps to tackle its deep-seated problems, today's slow erosion could give way to a sudden and irreversible decline in global economic relevance.