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The recent US national security strategy offers a flawed assessment of the European Union. It claims that open-border policies and so-called "woke" policies pose an grave threat to European civilization. Yet, this perspective is based on a serious misreading of the situation. The true challenge facing Europe is not cultural but economic and technological lag.

A Glaring Growth Gap Between Europe and the US

The data paint a sobering picture. Between 2008 and 2023, American economic output surged by 87%, while a paltry thirteen and a half percent growth for the EU. Over this time, European income per person fell from over three-quarters to just half of the US level. Remarkably, even Mississippi now boasts a higher per capita income than major EU nations like Italy and France.

Today, about 50% of the global 50 largest technology firms are American, while a mere four are European.

The Innovation Deficit: The Core Question

The growing disparity is driven by superior productivity growth in the US, largely due to breakthroughs and better use of resources. The landscape of global tech leadership is overwhelmingly US-centric. In the last five decades, hundreds of American startups have scaled into companies valued at more than $10bn, versus only fourteen in Europe.

This gap raises a vital issue: As the competition for future industries like AI, semiconductors, and quantum computing, where does Europe stand? Experts widely agree it is largely a contest between two involving the United States and China, with European nations entering at a clear disadvantage.

Underlying Factors of the Continent's Technological Lag

Several key reasons account for this technological divide.

• Venture Capital: The United States has a much more robust and agile system for financing new ventures. The EU still lacks a genuine unified investment market, which caps the growth potential of new firms.
• Bureaucratic Hurdles: Excessive and fragmented rules hinder European business. A American entrepreneur can launch a product under a single set of laws to access a consumer base of over 330 million. The EU, despite a bigger population, is divided among 27 separate systems, creating significant market obstacles.
• Mindset Differences: Attitudes toward risk-taking differ sharply. In some EU nations, 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 deeply integrated innovation pipeline linking defense and academia. The continent's long-term lack of spending in defense has eroded its capacity for pioneering research.

The Road Ahead: Reasons for Cautious Optimism

Despite these hurdles, there are causes for optimism. European leaders are increasingly aware of the severe threat and have started to advance serious reform. Key analyses on EU competitiveness and the internal market highlight the necessity of major changes.

Given appropriate incentives and rule changes, these assets could support far greater degrees of commercial innovation.

The continent still possesses significant advantages: high-quality human capital, top-tier schools and universities, and world-class research institutions. Alongside a large internal market and high savings rates, these foundations could trigger a new wave of investment and entrepreneurship.

Importantly, even if Europe does not take the lead in developing cutting-edge technologies, it can still significantly boost productivity by implementing and tailoring advancements from elsewhere.

A Critical Juncture

The European Union now stands at a critical crossroads. As the saying goes, decline often happens "slowly, then all at once". To date, the continent's slide in innovation has been gradual. However, without bold steps to tackle its deep-seated problems, today's gradual weakening could turn into a sudden and irreversible decline in global economic relevance.