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The recent US security policy document offers a misguided view of the European Union. The document asserts that open-border policies and so-called "woke" agendas represent an existential risk to the continent's identity. Yet, this argument is based on a serious misinterpretation of the reality. The actual danger confronting the EU is not cultural but economic and technological lag.

The Stark Economic Divide Separating Europe and the US

The data paint a sobering picture. From 2008 and 2023, American economic output grew by eighty-seven percent, compared to a paltry 13.5% growth for the European Union. Over this time, European income per person fell from over three-quarters to just 50% of the American figure. Remarkably, even the poorest US state now has a greater average income than major EU nations like France and Italy.

Today, roughly 50% of the world’s 50 largest technology firms are American, while only four are from Europe.

The Technological Shortfall: A Critical Problem

The growing disparity stems from superior efficiency gains in the United States, largely due to technological innovation and higher total factor productivity. The landscape of world technology leadership is overwhelmingly US-centric. Over the past fifty years, hundreds of American startups have scaled into companies valued at over ten billion dollars, versus only fourteen in Europe.

This disparity raises a pressing question: As the competition for future industries like semiconductors, AI, and quantum computing, what is the EU stand? Experts widely agree it is essentially a two-horse race between the US and China, with Europe entering at a significant handicap.

Root Causes of the Continent's Technological Lag

A number of major factors explain this technological divide.

• Venture Capital: The United States has a far deeper and more dynamic network for financing new ventures. Europe has yet to establish a genuine capital markets union, a factor that limits the scale of emerging companies.
• Regulatory Fragmentation: Excessive and fragmented regulation hinder European business. A American entrepreneur can introduce a product under one set of laws to access a market of hundreds of millions. The EU, despite a larger population, is split among 27 different national regimes, creating significant internal barriers.
• Cultural Attitudes: Attitudes toward entrepreneurial failure differ sharply. In some EU nations, business failure was historically met with penalties, whereas in the US, it is often considered a badge of experience.
• Defense Spending: The United States enjoys 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: Reasons for Cautious Optimism

Despite these challenges, one can find causes for hope. European leaders are growing more conscious of the existential challenge and have started to propose serious reform. Notable reports on EU competitiveness and the single market point to the necessity of major changes.

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

The continent still possesses significant strengths: high-quality human capital, top-tier schools and universities, and world-class labs. Coupled with a large internal market and substantial household savings, these elements could unleash a surge of venture creation.

Crucially, even if the EU does not become the leader in developing next-generation tech, it can still significantly boost economic output by adopting and adapting advancements from elsewhere.

An Inflection Point

The European Union now faces a decisive crossroads. As the saying goes, decline often happens "gradually and then suddenly". To date, Europe's slide in innovation has been steady. But, without decisive action to tackle its structural weaknesses, today's slow erosion could give way to a sudden and irreversible loss of global economic relevance.