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The recent US national security strategy presents a misguided view of the European Union. It claims that unrestrained immigration and what it terms "progressive" agendas pose an existential threat to European civilization. However, this argument rests on a fundamental misreading of the situation. The actual danger confronting the EU is not cultural but technological and economic backwardness.

A Glaring Economic Divide Separating the US and Europe

The data reveal a stark picture. Between 2008 and 2023, American economic output surged by 87%, while a paltry thirteen and a half percent increase for the European Union. During this time, EU GDP per capita fell from 76.5% to just half of the US level. Remarkably, even the poorest US state now boasts a greater average income than major EU nations like Italy and France.

Currently, about 50% of the global 50 largest tech companies are US-based, while only four are European.

The Innovation Deficit: The Core Problem

The growing economic gap is driven by stronger productivity growth in the United States, fueled by technological innovation and higher total factor productivity. The scene of global tech leadership is overwhelmingly US-centric. Over the past fifty years, hundreds of American startups have scaled into companies valued at more than $10bn, compared with 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 two-horse race between the United States and China, with Europe starting at a significant handicap.

Root Causes of Europe's Innovation Gap

Several major reasons explain this innovation chasm.

• Venture Capital: The United States has a much more robust and agile system for financing new ventures. Europe still lacks a genuine capital markets union, a factor that caps the growth potential of new firms.
• Bureaucratic Hurdles: Excessive and fragmented rules hamper European business. A US startup can introduce a service under one regulatory framework to access a market of hundreds of millions. The EU, despite a larger population size, is divided among twenty-seven separate systems, creating significant internal barriers.
• Mindset Differences: Attitudes toward risk-taking vary greatly. In parts of Europe, business failure was once viewed with penalties, whereas in the US, it is often seen as a badge of experience.
• Defense Spending: The United States enjoys a deeply integrated academic-military-industrial complex. Europe's long-term lack of spending in defense has weakened its capacity for pioneering research.

A Path Forward: Reasons for Cautious Optimism

In spite of these challenges, there are reasons for optimism. European leaders are growing more conscious of the severe threat and have begun to propose substantial change. Key analyses on EU competitiveness and the single market highlight the need for sweeping reforms.

Given appropriate incentives and rule changes, Europe's strengths could support much higher degrees of commercial innovation.

Europe retains considerable strengths: skilled workforce, top-tier schools and universities, and world-class labs. Alongside a large internal market and substantial household savings, these foundations have the potential to trigger a surge of investment and entrepreneurship.

Crucially, even if Europe does not take the lead in creating cutting-edge technologies, it can still significantly boost productivity by adopting and adapting innovations from elsewhere.

A Critical Juncture

Europe now faces a decisive moment. To paraphrase a famous line, decline often happens "slowly, then all at once". To date, Europe's slide in innovation has been gradual. But, if it fails to take bold steps to address its deep-seated problems, today's slow erosion could give way to a sudden and irreversible loss of global economic relevance.