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The recent US security policy document offers a misguided assessment of Europe. It claims that open-border policies and what it terms "woke" policies pose an existential risk to European civilization. However, this perspective is based on a serious misinterpretation of the situation. The actual danger facing Europe is not cultural but technological and economic backwardness.

A Glaring Growth Divide Separating the US and Europe

Statistics reveal a sobering picture. From 2008 and 2023, US GDP surged by 87%, while a paltry thirteen and a half percent increase for the EU. During this time, European income per person dropped from 76.5% to just half of the US level. Remarkably, even the poorest US state now has a greater average income than major European economies like France and Italy.

Today, about half of the world’s 50 largest technology firms are US-based, while a mere four are European.

The Technological Shortfall: The Core Problem

The growing disparity is driven by stronger productivity growth in the US, fueled by technological innovation and higher total factor productivity. The landscape of global tech leadership is overwhelmingly US-centric. In the last five decades, 241 US firms have scaled into companies valued at more than $10bn, compared with only fourteen in the European continent.

This gap raises a pressing question: In the race for future industries like AI, semiconductors, and quantum computing, where does the EU positioned? Most analysts agree it is largely a contest between two involving the United States and China, with European nations entering at a significant disadvantage.

Root Causes of Europe's Innovation Gap

Several key factors explain this technological divide.

• Financing Ecosystem: The United States has a much more robust and more dynamic network for funding startups. The EU still lacks a true capital markets union, which limits the growth potential of new firms.
• Bureaucratic Hurdles: Excessive and fragmented regulation hamper European business. A American entrepreneur can introduce a product under a single regulatory framework to access a consumer base of hundreds of millions. The European Union, despite a bigger population, is split among 27 different national regimes, creating huge internal barriers.
• Cultural Attitudes: Attitudes toward risk-taking vary greatly. In parts of Europe, a startup's collapse was once viewed with penalties, whereas in the US, it is often seen as a badge of experience.
• Defense Spending: The US benefits from a deeply integrated innovation pipeline linking defense and academia. The continent's chronic underinvestment in military capabilities has eroded its ability in breakthrough innovation.

The Road Ahead: Grounds for Hopefulness

In spite of these hurdles, one can find reasons for optimism. European leaders are increasingly aware of the existential challenge and have started to advance serious reform. Notable analyses on EU competitiveness and the single market highlight the necessity of sweeping reforms.

With the right incentives and regulatory reforms, Europe's strengths could support much higher levels of commercial innovation.

Europe retains significant strengths: high-quality workforce, excellent schools and universities, and world-class labs. Alongside a vast domestic consumer base and high savings rates, these elements have the potential to unleash a new wave of investment and entrepreneurship.

Importantly, even if the EU does not take the lead in developing next-generation technologies, it can still significantly increase economic output by implementing and tailoring advancements from elsewhere.

An Inflection Point

The European Union now faces a critical crossroads. To paraphrase a famous line, economic erosion often happens "gradually and then suddenly". So far, the continent's slide in innovation has been gradual. But, if it fails to take decisive action to address its structural weaknesses, today's slow erosion could turn into a sudden and irreversible loss of global economic relevance.