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The recent US security policy document offers a misguided assessment of the European Union. The document asserts that open-border policies and so-called "progressive" policies pose an grave risk to European civilization. Yet, this perspective rests on a fundamental misinterpretation of the situation. The true danger facing the EU is not cultural but technological and economic lag.

A Glaring Growth Divide Separating Europe and the US

The data paint a stark picture. Between 2008 and 2023, American economic output grew by 87%, compared to a paltry 13.5% increase for the EU. During this period, EU GDP per capita fell from 76.5% to just half of the US level. Strikingly, even Mississippi now has a greater average income than major EU nations like Italy and France.

Today, about 50% of the world’s 50 largest technology firms are US-based, while a mere four are from Europe.

The Innovation Shortfall: A Critical Problem

The growing economic gap is driven by superior productivity growth in the US, fueled by breakthroughs and better use of resources. The landscape of world technology dominance is decidedly American. In the last five decades, hundreds of American startups have grown into enterprises valued at over $10bn, compared with only fourteen in Europe.

This gap raises a pressing question: As the competition for tomorrow's sectors like semiconductors, AI, and quantum computing, where does the EU stand? Experts widely concede it is largely a two-horse race between the US and China, with Europe starting at a clear disadvantage.

Root Causes of the Continent's Innovation Gap

Several major factors account for this technological divide.

• Venture Capital: The US boasts a far deeper and agile network for financing new ventures. Europe has yet to establish a genuine unified investment market, which limits the scale of emerging companies.
• Regulatory Fragmentation: Excessive and fragmented rules hinder Europe. A US startup can launch a service under one set of laws to access a consumer base of over 330 million. The EU, despite a bigger population, is split among twenty-seven separate regimes, creating significant internal barriers.
• Mindset Differences: Attitudes toward risk-taking vary greatly. In some EU nations, a startup's collapse was historically met with stigma, whereas in the US, it is often seen as a badge of experience.
• Defense Spending: The US benefits from a tightly woven innovation pipeline linking defense and academia. Europe's chronic underinvestment in defense has weakened its ability in breakthrough innovation.

A Path Forward: Grounds for Hopefulness

In spite of these hurdles, there are causes for hope. Policymakers are increasingly aware of the existential challenge and have begun to advance substantial change. Notable reports on European competitiveness and the internal market highlight the necessity of sweeping changes.

Given appropriate policies and rule changes, Europe's strengths could support far greater degrees of business-led breakthroughs.

The continent still possesses considerable strengths: high-quality workforce, top-tier education systems, and world-class labs. Coupled with a large internal market and high savings rates, these elements could unleash a surge of investment and entrepreneurship.

Crucially, even if the EU does not take the lead in creating cutting-edge technologies, it can still significantly increase productivity by adopting and adapting advancements 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". To date, the continent's slide in innovation has been steady. But, if it fails to take decisive action to address its deep-seated problems, today's gradual weakening could give way to a rapid and permanent decline in global economic relevance.