Europe Faces Economic and Technological Challenges Amid Global Competition
The article argues that former US President Trump's assessment of Europe is incorrect; the true challenge lies in Europe's economic and technological backwardness rather than immigration or cultural politics.
Between 2008 and 2023, US GDP grew by 87% while EU GDP increased by only 13.5%, with EU GDP per capita falling from 76.5% to about 50% of the US level. Globally, technology leadership is dominated by the US, which accounts for about half of the world's 50 largest tech firms, whereas Europe has only four. Additionally, 241 US companies have reached a market capitalization of $10 billion or more compared to just 14 European firms.
Europe's regulated market remains fragmented across 27 member states, with the IMF estimating that internal market barriers function like a 44% tariff on goods and a 110% tariff on services. Furthermore, the EU lacks a genuine capital markets union, which limits the scale and speed of startups compared to the US ecosystem. Cultural differences also impact innovation, as some European countries penalize failed entrepreneurs, while in the US, failure is viewed as an integral part of building new ventures.
Defense spending and innovation are linked, yet Europe underinvests in defense compared to the US, Israel, and Ukraine. Higher military R&D and spending in these countries fuel civilian technology advancements. NATO suggests a defense spending target of 3.5% of GDP to support this.
There are cautious signs of reform with the 2024 EU competitiveness and single-market reports by Mario Draghi and Enrico Letta signaling momentum that, with appropriate incentives, could boost innovation. Europe’s strengths include high-quality human capital, education, and research institutions. By adopting and adapting innovations from outside the EU, Europe has the potential to increase innovation and productivity.
Europe stands at an inflection point. Without addressing structural weaknesses, its gradual economic and technological decline risks becoming sudden and irreversible.
