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Donald Trump's security policy document presents a flawed assessment of Europe. The document asserts that open-border policies and so-called "progressive" policies represent an grave threat to the continent's identity. 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 Economic Gap Between Europe and the US

The data paint a sobering picture. Between 2008 and 2023, US GDP surged by 87%, compared to a mere 13.5% increase for the EU. Over this time, EU GDP per capita dropped from 76.5% to just 50% of the American figure. Remarkably, even Mississippi now boasts a higher per capita income than several leading European economies like Italy and France.

Currently, roughly 50% of the global 50 largest technology firms are American, while only four are from Europe.

The Technological Shortfall: The Core Question

The growing disparity is driven by superior productivity growth in the United States, largely due to technological innovation and better use of resources. The landscape of world technology leadership is decidedly US-centric. Over the past fifty years, hundreds of American startups have scaled into enterprises valued at over $10bn, compared with only fourteen in Europe.

This gap raises a vital issue: As the competition for future industries like AI, semiconductors, and quantum computing, where does the EU stand? Most analysts agree it is essentially a contest between two between the United States and China, with European nations starting at a clear disadvantage.

Underlying Factors of the Continent's Innovation Gap

A number of key factors account for this technological divide.

• Financing Ecosystem: The US boasts a much more robust and agile system for financing new ventures. The EU still lacks a true capital markets union, which limits the scale of new firms.
• Regulatory Fragmentation: Excessive and fragmented rules hinder European business. A American entrepreneur can introduce a service under a single regulatory framework to access a market of hundreds of millions. The EU, despite a larger population size, is split among twenty-seven different national regimes, creating significant market obstacles.
• Mindset Differences: Attitudes toward entrepreneurial failure differ sharply. In parts of Europe, a startup's collapse was once viewed with penalties, whereas in the US, it is often considered a badge of experience.
• Defense Spending: The United States enjoys a tightly woven academic-military-industrial complex. Europe's long-term lack of spending in military capabilities has eroded its capacity for pioneering research.

The Road Ahead: Grounds for Hopefulness

In spite of these hurdles, one can find reasons for optimism. Policymakers are increasingly aware of the existential challenge and have begun to propose substantial change. Notable analyses on European competitiveness and the internal market highlight the need for major reforms.

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

The continent still possesses considerable advantages: skilled human capital, top-tier education systems, and world-class research institutions. Coupled with a vast domestic consumer base and substantial household savings, these elements have the potential to trigger a surge of investment and entrepreneurship.

Importantly, even if Europe does not become the leader in creating next-generation tech, it can still dramatically increase productivity by implementing and tailoring advancements from elsewhere.

An Inflection Point

The European Union now stands at a decisive crossroads. As the saying goes, economic erosion often happens "gradually and then suddenly". So far, Europe's technological decline has been steady. But, if it fails to take bold steps to tackle its structural weaknesses, today's slow erosion could turn into a sudden and irreversible decline in global economic relevance.