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The recent US security policy document offers a misguided assessment of Europe. It claims that open-border policies and so-called "progressive" policies represent an existential risk to the continent's identity. Yet, this argument rests on a serious misinterpretation of the situation. The actual challenge confronting Europe is not cultural but economic and technological backwardness.

A Glaring Growth Gap Between Europe and the US

The data reveal a stark picture. Between 2008 and 2023, US GDP grew by 87%, while a paltry thirteen and a half percent increase for the EU. Over this time, EU GDP per capita dropped from 76.5% to just 50% of the American figure. Remarkably, even the poorest US state now boasts a higher per capita income than several leading European economies like France and Italy.

Today, about half of the global 50 largest tech companies are US-based, while only four are European.

The Innovation Shortfall: A Critical Question

This widening economic gap stems from stronger productivity growth in the United States, fueled by breakthroughs and higher total factor productivity. The scene of world technology leadership is overwhelmingly American. Over the past fifty years, hundreds of American startups have scaled into enterprises valued at over $10bn, compared with just 14 in the European continent.

This disparity raises a vital question: In the race for tomorrow's sectors like semiconductors, AI, and quantum computing, where does Europe stand? Experts widely concede it is largely a two-horse race involving the US and China, with Europe entering at a significant handicap.

Root Causes of Europe's Innovation Gap

Several major reasons account for this technological divide.

• Financing Ecosystem: The US boasts a much more robust and agile network for financing new ventures. The EU still lacks a genuine unified investment market, which limits the growth potential of new firms.
• Regulatory Fragmentation: Excessive and fragmented regulation hamper European business. A US startup can introduce a service under a single set of laws to access a consumer base of over 330 million. The European Union, despite a larger population size, is split among 27 different national systems, creating significant internal barriers.
• Mindset Differences: Attitudes toward risk-taking vary greatly. In parts of Europe, a startup's collapse was historically met with penalties, whereas in the United States, it is often seen as a valuable lesson.
• Military Investment: 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 pioneering research.

A Path Forward: Reasons for Hopefulness

In spite of these hurdles, there are causes for optimism. Policymakers are growing more conscious of the existential challenge and have started to advance substantial change. Notable reports on European competitiveness and the single market highlight the necessity of major changes.

With the right incentives and rule changes, Europe's strengths might enable far greater degrees of business-led breakthroughs.

The continent still possesses significant strengths: skilled human capital, excellent education systems, and premier research institutions. Coupled with a large internal market and high savings rates, these foundations could unleash a new wave of investment and entrepreneurship.

Crucially, even if the EU does not become the leader in creating next-generation tech, it can still significantly increase economic output by implementing and tailoring innovations from other regions.

An Inflection Point

The European Union now stands at a critical crossroads. To paraphrase a famous line, decline often happens "slowly, then all at once". So far, Europe's slide in innovation has been steady. However, without bold steps to address its structural weaknesses, today's gradual weakening could give way to a sudden and irreversible decline in world influence.