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The recent US national security strategy presents a flawed view of the European Union. The document asserts that open-border policies and what it terms "progressive" policies pose an grave threat to the continent's identity. However, this perspective rests on a fundamental misreading of the reality. The true danger confronting Europe is not societal but economic and technological backwardness.

The Stark Growth Divide Between the US and Europe

Statistics paint a sobering contrast. Between 2008 and 2023, US GDP surged by eighty-seven percent, compared to a paltry thirteen and a half percent increase for the European Union. During this period, EU GDP per capita fell from 76.5% to just half of the US level. Remarkably, even the poorest US state now has a higher per capita income than several leading EU nations like Italy and France.

Currently, about half of the global top fifty tech companies are American, while only four are European.

The Innovation Shortfall: The Core Question

The growing economic gap is driven by stronger productivity growth in the US, largely due to breakthroughs and higher total factor productivity. The scene of world technology dominance is decidedly US-centric. In the last fifty years, hundreds of American startups have grown into enterprises valued at more than ten billion dollars, compared with only fourteen in the European continent.

This gap prompts a vital issue: As the competition for tomorrow's sectors like semiconductors, AI, and quantum computing, what is Europe positioned? Experts widely agree it is essentially a two-horse race 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 reasons account for this innovation chasm.

• Venture Capital: The United States has a much more robust and more dynamic network 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 rules hinder Europe. A US startup can launch a service under one set of laws to access a market of hundreds of millions. The European Union, despite a bigger population size, is divided among 27 different national systems, creating significant internal barriers.
• Cultural Attitudes: Attitudes toward risk-taking differ sharply. In some EU nations, a startup's collapse was once viewed with stigma, whereas in the US, it is often considered a valuable lesson.
• Defense Spending: The United States enjoys a deeply integrated innovation pipeline linking defense and academia. The continent's long-term lack of spending in defense has weakened its ability in pioneering research.

A Path Forward: Grounds for Hopefulness

In spite of these hurdles, one can find reasons for optimism. European leaders are growing more conscious of the existential challenge and have started to propose serious reform. Key reports on European competitiveness and the single market point to the need for major reforms.

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

The continent retains significant strengths: high-quality workforce, excellent schools and universities, and premier labs. Alongside a large internal market and high savings rates, these elements could unleash a surge of investment and entrepreneurship.

Crucially, even if the EU does not become the leader in developing cutting-edge technologies, it can still dramatically increase productivity by implementing and tailoring innovations from elsewhere.

A Critical Juncture

The European Union now faces a decisive crossroads. To paraphrase a famous line, decline often happens "gradually and then suddenly". To date, the continent's technological decline has been gradual. However, if it fails to take decisive action to tackle its structural weaknesses, today's gradual weakening could give way to a rapid and permanent loss of global economic relevance.