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The recent US national security strategy offers a flawed assessment of the European Union. The document asserts that unrestrained immigration and what it terms "woke" policies pose an grave threat to the continent's identity. However, this argument is based on a serious misreading of the situation. The actual danger facing the EU is not cultural but economic and technological lag.

A Glaring Economic Gap Separating the US and Europe

Statistics reveal a stark contrast. Between 2008 and 2023, US GDP grew by 87%, compared to a paltry thirteen and a half percent increase for the European Union. Over this period, European income per person fell from 76.5% 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.

Currently, about 50% of the global top fifty tech companies are US-based, while only four are from Europe.

The Innovation Shortfall: A Critical Problem

This widening economic gap stems from superior productivity growth in the US, largely due to breakthroughs and higher total factor productivity. The scene of world technology dominance is decidedly American. Over the past fifty years, 241 US firms have grown into companies valued at more than ten billion dollars, versus only fourteen in Europe.

This gap prompts a pressing question: As the competition for tomorrow's sectors like semiconductors, AI, and quantum computing, where does the EU positioned? Most analysts agree it is essentially a contest between two between the US and China, with European nations starting at a clear handicap.

Underlying Factors of Europe's Innovation Gap

A number of major factors explain this technological divide.

• Venture Capital: The US boasts a far deeper and more dynamic network for financing new ventures. Europe still lacks a true capital markets union, which caps the growth potential of emerging companies.
• Regulatory Fragmentation: Complex and divided regulation hinder Europe. A US startup can introduce a service under one regulatory framework to access a market of hundreds of millions. The European Union, despite a bigger population size, is split among 27 separate systems, creating significant internal barriers.
• Mindset Differences: Views on risk-taking differ sharply. In parts of Europe, a startup's collapse was historically viewed with stigma, whereas in the US, it is often considered a valuable lesson.
• Defense Spending: The United States enjoys a tightly woven academic-military-industrial complex. The continent's chronic underinvestment in military capabilities has eroded its capacity for pioneering research.

A Path Forward: Grounds for Hopefulness

Despite these hurdles, there are reasons for hope. European leaders are increasingly aware of the existential challenge and have begun to advance substantial change. Key analyses on EU competitiveness and the internal market point to the necessity of major reforms.

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

The continent retains significant advantages: skilled human capital, top-tier schools and universities, and premier labs. Coupled with a large internal market and substantial household savings, these foundations could trigger a surge of venture creation.

Crucially, even if Europe does not take the lead in developing next-generation tech, it can still significantly boost economic output by adopting and adapting innovations from other regions.

An Inflection Point

Europe now faces a decisive moment. To paraphrase a famous line, decline often happens "slowly, then all at once". So far, Europe's technological decline has been gradual. But, without decisive action to address its structural weaknesses, today's slow erosion could turn into a sudden and irreversible decline in global economic relevance.