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The recent US security policy document offers a misguided view of the European Union. It claims that open-border policies and what it terms "woke" policies pose an grave threat to European civilization. Yet, this perspective rests on a serious misreading of the situation. The actual challenge confronting the EU is not cultural but economic and technological backwardness.

A Glaring Economic Divide Separating Europe and the US

Statistics paint a sobering contrast. From 2008 and 2023, US GDP surged by 87%, compared to a mere 13.5% increase for the EU. During this period, EU GDP per capita fell from 76.5% to just 50% of the US level. Remarkably, even Mississippi now has a higher per capita income than several leading European economies like France and Italy.

Today, roughly 50% of the global 50 largest technology firms are US-based, while only four are from Europe.

The Technological Shortfall: A Critical Question

The growing economic gap is driven by superior productivity growth in the United States, largely due to technological innovation and higher total factor productivity. The scene of world technology leadership is overwhelmingly American. Over the past five decades, hundreds of American startups have scaled into enterprises valued at over ten billion dollars, versus just 14 in Europe.

This disparity raises a pressing issue: In the race for future industries like semiconductors, AI, and fusion energy, where does the EU positioned? Experts widely agree it is largely a contest between two between the United States and China, with European nations starting at a clear disadvantage.

Root Causes of Europe's Innovation Gap

A number of key factors explain this technological divide.

• Financing Ecosystem: The US boasts a much more robust and agile network for financing new ventures. The EU has yet to establish a genuine capital markets union, a factor that caps the growth potential of new firms.
• Bureaucratic Hurdles: Excessive and fragmented regulation hinder Europe. A US startup can launch a product under one regulatory framework to access a market of hundreds of millions. The EU, despite a larger population size, is split among 27 different national regimes, creating huge internal barriers.
• Cultural Attitudes: Views on risk-taking differ sharply. In parts of Europe, a startup's collapse was once viewed with stigma, whereas in the US, it is often considered a valuable lesson.
• Military Investment: The US benefits from a deeply integrated innovation pipeline linking defense and academia. The continent's chronic underinvestment in defense has eroded 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 increasingly aware of the severe threat and have started to advance serious reform. Notable analyses on EU competitiveness and the internal market point to the necessity of sweeping reforms.

With the right incentives and regulatory reforms, these assets might enable far greater degrees of commercial innovation.

The continent still possesses significant advantages: skilled human capital, excellent schools and universities, and premier labs. Coupled with a large internal market and substantial household savings, these elements have the potential to trigger a surge of investment and entrepreneurship.

Crucially, even if the EU does not become the leader in developing cutting-edge tech, it can still significantly boost economic output by implementing and tailoring advancements from other regions.

A Critical Juncture

Europe now stands at a critical crossroads. As the saying goes, economic erosion often happens "slowly, then all at once". So far, 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 give way to a sudden and irreversible loss of global economic relevance.