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The recent US security policy document offers a misguided view of the European Union. The document asserts that unrestrained immigration and so-called "progressive" policies represent an existential threat to the continent's identity. However, this argument rests on a fundamental misinterpretation of the situation. The actual challenge facing the EU is not cultural but technological and economic backwardness.

A Glaring Economic Divide Separating Europe and the US

The data reveal a sobering contrast. Between 2008 and 2023, US GDP grew by 87%, while a paltry thirteen and a half percent increase for the European Union. Over this time, EU GDP per capita fell from over three-quarters to just 50% of the US level. Strikingly, even Mississippi now boasts a greater average income than several leading European economies like Italy and France.

Today, about 50% of the world’s top fifty tech companies are US-based, while a mere four are from Europe.

The Technological Shortfall: The Core Question

This widening economic gap stems from superior efficiency gains in the United States, largely due to breakthroughs and better use of resources. The scene of global tech dominance is overwhelmingly American. In the last fifty years, hundreds of American startups have grown into companies valued at more than ten billion dollars, compared with only fourteen in Europe.

This disparity prompts a pressing issue: As the competition for tomorrow's sectors like semiconductors, AI, and quantum computing, where does the EU stand? Most analysts agree it is essentially a contest between two involving the US and China, with European nations starting at a significant disadvantage.

Underlying Factors of Europe's Technological Lag

A number of major factors account for this technological divide.

• Venture Capital: The United States has a far deeper and more dynamic network for financing new ventures. The EU has yet to establish a genuine capital markets union, which limits the growth potential of new firms.
• Regulatory Fragmentation: Excessive and fragmented rules hinder Europe. A US startup can introduce a service under a single set of laws to access a market of over 330 million. The European Union, despite a bigger population size, is divided among twenty-seven separate regimes, creating huge internal barriers.
• Cultural Attitudes: Views on risk-taking vary greatly. In parts of Europe, business failure was historically viewed with penalties, whereas in the United States, it is often seen as a valuable lesson.
• Defense Spending: The US benefits from a tightly woven academic-military-industrial complex. The continent's chronic underinvestment in defense has weakened its ability in pioneering research.

The Road Ahead: Reasons for Hopefulness

Despite these challenges, one can find causes for optimism. European leaders are increasingly aware of the severe threat and have begun to propose serious reform. Notable reports on European competitiveness and the internal market highlight the need for major reforms.

With the right incentives and regulatory reforms, Europe's strengths might enable much higher degrees of business-led breakthroughs.

The continent still possesses significant advantages: high-quality human capital, excellent education systems, and world-class labs. Alongside a large internal market and high savings rates, these elements could unleash a new wave of investment and entrepreneurship.

Crucially, even if the EU does not take the lead in developing cutting-edge technologies, it can still significantly increase economic output by implementing and tailoring advancements from other regions.

An Inflection Point

The European Union now stands at a decisive crossroads. As the saying goes, economic erosion often happens "slowly, then all at once". To date, Europe's technological decline has been gradual. However, if it fails to take decisive action to tackle its deep-seated problems, today's gradual weakening could turn into a rapid and permanent decline in world influence.