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The recent US security policy document offers a misguided assessment of Europe. It claims that unrestrained immigration and what it terms "progressive" agendas represent an existential threat to European civilization. Yet, this argument is based on a fundamental misinterpretation of the situation. The actual danger confronting the EU is not societal but technological and economic backwardness.

The Stark Economic Divide Between Europe and the US

Statistics reveal a sobering contrast. Between 2008 and 2023, American economic output grew by eighty-seven percent, compared to a mere thirteen and a half percent growth for the European Union. During this period, EU GDP per capita dropped from over three-quarters to just 50% of the American figure. Remarkably, even the poorest US state now boasts a greater average income than major European economies like France and Italy.

Today, roughly 50% of the global 50 largest technology firms are US-based, while a mere four are from Europe.

The Innovation Deficit: A Critical Question

This widening disparity stems from superior productivity growth in the US, largely due to technological innovation and higher total factor productivity. The landscape of world technology leadership is decidedly American. In the last fifty years, hundreds of American startups have scaled into enterprises valued at over ten billion dollars, versus just 14 in Europe.

This disparity raises a vital question: As the competition for tomorrow's sectors like AI, semiconductors, and quantum computing, what is the EU positioned? Experts widely concede it is essentially a two-horse race between the United States and China, with Europe starting at a significant disadvantage.

Underlying Factors of Europe's Innovation Gap

Several key reasons explain this innovation chasm.

• Venture Capital: The US boasts a much more robust and agile system for funding startups. The EU still lacks a genuine capital markets union, which caps the growth potential of new firms.
• Regulatory Fragmentation: Excessive and fragmented rules hamper European business. A US startup can introduce a product under one set of laws to access a market of hundreds of millions. The EU, despite a bigger population, is split among 27 separate systems, creating huge internal barriers.
• Mindset Differences: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, business failure was once viewed with penalties, whereas in the US, it is often considered a badge of experience.
• Military Investment: The United States enjoys a deeply integrated innovation pipeline linking defense and academia. Europe's chronic underinvestment in military capabilities has eroded its ability in pioneering research.

The Road Ahead: Grounds for Cautious Optimism

In spite of these hurdles, one can find causes for optimism. Policymakers are increasingly aware of the existential challenge and have started to propose substantial change. Notable reports on European competitiveness and the single market highlight the need for major changes.

Given appropriate policies and rule changes, Europe's strengths might enable much higher degrees of commercial innovation.

The continent retains considerable strengths: skilled workforce, top-tier schools and universities, and premier research institutions. Alongside a large internal market and substantial household savings, these foundations have the potential to trigger a new wave of venture creation.

Crucially, even if the EU does not take the lead in creating cutting-edge technologies, it can still dramatically boost productivity by implementing and tailoring innovations from other regions.

An Inflection Point

The European Union now faces a decisive moment. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, the continent's slide in innovation has been gradual. But, if it fails to take decisive action to tackle its deep-seated problems, today's slow erosion could give way to a rapid and permanent decline in world influence.