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The recent US national security strategy presents a flawed assessment of the European Union. The document asserts that unrestrained immigration and what it terms "woke" policies pose an existential threat to European civilization. Yet, this argument is based on a serious misreading of the reality. The actual challenge facing Europe is not societal but economic and technological backwardness.

A Glaring Economic Divide Separating the US and Europe

The data reveal a sobering picture. Between 2008 and 2023, American economic output grew by eighty-seven percent, while a paltry 13.5% increase for the European Union. Over this period, EU GDP per capita dropped from over three-quarters to just half of the US level. Strikingly, even the poorest US state now boasts a greater average income than several leading European economies like Italy and France.

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

The Technological Deficit: A Critical Problem

The growing economic gap is driven by stronger efficiency gains in the United States, largely due to technological innovation and better use of resources. The scene of global tech leadership is overwhelmingly American. Over the past five decades, 241 US firms have scaled into enterprises valued at more than $10bn, versus just 14 in the European continent.

This disparity raises a pressing issue: As the competition for future industries like AI, semiconductors, and fusion energy, where does the EU stand? Experts widely concede it is essentially a contest between two between the US and China, with Europe entering at a clear disadvantage.

Underlying Factors of Europe's Technological Lag

A number of key factors explain this technological divide.

• Financing Ecosystem: The US boasts a far deeper and agile system for financing new ventures. Europe has yet to establish a true capital markets union, a factor that limits the scale of emerging companies.
• Regulatory Fragmentation: Excessive and fragmented regulation hinder European business. A US startup can introduce a service under one regulatory framework to access a consumer base of hundreds of millions. The European Union, despite a larger population, is split among twenty-seven separate systems, creating significant market obstacles.
• Mindset Differences: Attitudes toward entrepreneurial failure differ sharply. In parts of Europe, business failure was once met with penalties, whereas in the US, it is often seen as a badge of experience.
• Military Investment: The US benefits from a tightly woven innovation pipeline linking defense and academia. The continent's long-term lack of spending in defense has weakened its ability in breakthrough innovation.

A Path Forward: Grounds for Cautious Optimism

In spite of these hurdles, there are causes for optimism. Policymakers are growing more conscious of the existential challenge and have begun to propose substantial change. Notable analyses on European competitiveness and the internal market highlight the need for major changes.

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

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

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

A Critical Juncture

The European Union now faces a critical moment. As the saying goes, economic erosion often happens "gradually and then suddenly". So far, Europe's technological decline has been steady. But, if it fails to take decisive action to address its structural weaknesses, today's gradual weakening could turn into a sudden and irreversible loss of world influence.