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The recent US national security strategy presents a misguided view of the European Union. It claims that open-border policies and what it terms "progressive" agendas represent an existential risk to European civilization. However, this argument rests on a fundamental misreading of the situation. The actual danger facing the EU is not cultural but economic and technological lag.

The Stark Growth Gap Between the US and Europe

Statistics reveal a stark picture. Between 2008 and 2023, American economic output surged by 87%, while a mere 13.5% increase for the EU. During this period, EU GDP per capita dropped from over three-quarters to just 50% of the American figure. Remarkably, even Mississippi now boasts a greater average income than several leading EU nations like France and Italy.

Today, roughly half of the global 50 largest technology firms are US-based, while a mere four are European.

The Innovation Shortfall: The Core Question

The growing disparity is driven by superior efficiency gains in the United States, fueled by technological innovation and higher total factor productivity. The scene of global tech leadership is overwhelmingly American. Over the past five decades, 241 US firms have scaled into companies valued at more than ten billion dollars, compared with only fourteen in the European continent.

This gap raises a pressing question: As the competition for tomorrow's sectors like AI, semiconductors, and quantum computing, where does the EU stand? Most analysts concede it is largely a contest between two between the US and China, with European nations starting at a significant disadvantage.

Root Causes of Europe's Technological Lag

Several major reasons explain this technological divide.

• Venture Capital: The United States has a much more robust and agile system for funding startups. Europe has yet to establish a genuine capital markets union, which limits the growth potential of emerging companies.
• Regulatory Fragmentation: Excessive and fragmented rules hamper Europe. A American entrepreneur can introduce a service under one regulatory framework to access a market of over 330 million. The European Union, despite a bigger population size, is divided among twenty-seven separate regimes, creating significant internal barriers.
• Mindset Differences: Views on risk-taking differ sharply. In some EU nations, a startup's collapse was once met with stigma, whereas in the US, it is often seen as a valuable lesson.
• Defense Spending: The United States enjoys a deeply integrated academic-military-industrial complex. Europe's chronic underinvestment in military capabilities has eroded its capacity for breakthrough innovation.

The Road Ahead: Grounds for Cautious Optimism

In spite of these challenges, there are reasons for hope. European leaders are increasingly aware of the existential challenge and have begun to advance substantial change. Notable analyses on EU competitiveness and the internal market point to the need for major changes.

With the right policies and rule changes, Europe's strengths could support much higher levels of business-led breakthroughs.

Europe still possesses considerable strengths: skilled human capital, top-tier schools and universities, and world-class research institutions. Coupled with a large internal market and high savings rates, these foundations have the potential to unleash a surge of investment and entrepreneurship.

Crucially, even if Europe does not become the leader in creating cutting-edge technologies, it can still dramatically increase economic output by adopting and adapting advancements from other regions.

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 technological decline has been gradual. But, without bold steps to tackle its deep-seated problems, today's gradual weakening could give way to a sudden and irreversible loss of world influence.