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The recent US security policy document offers a flawed assessment of the European Union. It claims that open-border policies and what it terms "progressive" policies pose an grave risk to the continent's identity. Yet, this argument is based on a serious misreading of the reality. The true danger confronting Europe is not societal but economic and technological backwardness.

The Stark Growth Divide Separating Europe and the US

The data paint a stark picture. From 2008 and 2023, American economic output grew by 87%, while a mere thirteen and a half percent increase for the European Union. Over this period, European income per person dropped from 76.5% to just 50% of the US level. Remarkably, even Mississippi now boasts a higher per capita income than several leading EU nations like Italy and France.

Currently, about 50% of the global top fifty tech companies are American, while only four are European.

The Innovation Shortfall: The Core Problem

The growing disparity is driven by stronger efficiency gains in the United States, largely due to technological innovation and better use of resources. The landscape of world technology dominance is overwhelmingly American. Over the past fifty years, 241 US firms have grown into enterprises valued at more than $10bn, versus just 14 in Europe.

This disparity raises a pressing question: As the competition for tomorrow's sectors like AI, semiconductors, and quantum computing, where does the EU stand? Experts widely concede it is largely a two-horse race involving the United States and China, with European nations entering at a significant handicap.

Underlying Factors of Europe's Innovation Gap

Several major factors explain this technological divide.

• Venture Capital: The United States has a much more robust and more dynamic system for funding startups. The EU has yet to establish a genuine capital markets union, which caps the scale of emerging companies.
• Regulatory Fragmentation: Excessive and fragmented rules hinder European business. A US startup can launch a product under one regulatory framework to access a consumer base of over 330 million. The European Union, despite a larger population size, is divided among twenty-seven different national systems, creating huge internal barriers.
• Mindset Differences: Attitudes toward entrepreneurial failure vary greatly. In some EU nations, a startup's collapse was once met with penalties, whereas in the United States, it is often seen as a valuable lesson.
• Military Investment: The United States enjoys a tightly woven innovation pipeline linking defense and academia. The continent's long-term lack of spending in military capabilities has eroded its ability in pioneering research.

A Path Forward: Reasons for Hopefulness

Despite these hurdles, one can find reasons for hope. Policymakers are increasingly aware of the severe threat and have started to propose substantial change. Notable analyses on European competitiveness and the single market point to the need for major reforms.

Given appropriate policies and regulatory reforms, Europe's strengths might enable much higher levels of business-led breakthroughs.

Europe still possesses considerable strengths: high-quality workforce, top-tier schools and universities, and world-class labs. Coupled with a large internal market and substantial household savings, these foundations could unleash a surge of venture creation.

Crucially, even if the EU does not take the lead in creating cutting-edge technologies, it can still significantly increase economic output by adopting and adapting innovations from other regions.

An Inflection Point

Europe now stands at a critical moment. As the saying goes, economic erosion often happens "gradually and then suddenly". So far, the continent's technological decline has been gradual. However, without decisive action to address its structural weaknesses, today's slow erosion could turn into a rapid and permanent loss of global economic relevance.