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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 so-called "progressive" policies represent an grave risk to European civilization. Yet, this argument rests on a fundamental misreading of the reality. The true danger facing the EU is not societal but economic and technological backwardness.

The Stark Growth Divide Between the US and Europe

The data reveal a stark picture. Between 2008 and 2023, US GDP grew by 87%, while a paltry thirteen and a half percent growth for the European Union. During this period, European income per person fell from over three-quarters to just 50% of the US level. Strikingly, even the poorest US state now boasts a higher per capita income than major European economies like Italy and France.

Currently, roughly half of the world’s top fifty technology firms are US-based, while only four are European.

The Innovation Deficit: The Core Problem

This widening disparity stems from superior efficiency gains in the United States, fueled by breakthroughs and higher total factor productivity. The scene of world technology dominance is overwhelmingly US-centric. Over the past five decades, hundreds of American startups have scaled into enterprises valued at more than ten billion dollars, versus just 14 in Europe.

This disparity prompts a vital question: In the race for future industries like AI, semiconductors, and quantum computing, what is Europe positioned? Experts widely concede it is largely a contest between two between the US and China, with European nations entering at a clear handicap.

Underlying Factors of the Continent's Technological Lag

A number of key factors account for this innovation chasm.

• Financing Ecosystem: The US boasts a far deeper and agile system for funding startups. Europe still lacks a true capital markets union, a factor that caps the growth potential of emerging companies.
• Regulatory Fragmentation: Excessive and fragmented regulation hinder Europe. A US startup can launch a product under a single regulatory framework to access a market of hundreds of millions. The European Union, despite a larger population size, is divided among 27 different national regimes, creating significant internal barriers.
• Cultural Attitudes: Attitudes toward entrepreneurial failure vary greatly. In parts of Europe, business failure was historically viewed with penalties, whereas in the United States, it is often seen as a valuable lesson.
• Military Investment: The United States enjoys a tightly woven innovation pipeline linking defense and academia. The continent's chronic underinvestment in defense has eroded its ability in breakthrough innovation.

The Road Ahead: Reasons for Cautious Optimism

Despite these challenges, one can find reasons for hope. European leaders are growing more conscious of the severe threat and have begun to advance serious reform. Notable analyses on EU competitiveness and the single market point to the need for major reforms.

With the right policies and regulatory reforms, these assets could support far greater levels of business-led breakthroughs.

Europe retains considerable advantages: skilled workforce, top-tier education systems, and premier labs. Alongside a vast domestic consumer base and substantial household savings, these elements have the potential to trigger a new wave of venture creation.

Crucially, even if the EU does not take the lead in creating cutting-edge tech, it can still significantly increase productivity by implementing and tailoring advancements from other regions.

An Inflection Point

The European Union now faces a decisive moment. As the saying goes, economic erosion often happens "slowly, then all at once". So far, Europe's slide in innovation has been gradual. But, without decisive action to address its deep-seated problems, today's gradual weakening could turn into a sudden and irreversible decline in world influence.