Europe struggles to compete with the US across various sectors, including technology, energy, capital markets, and universities.
The conflict in Ukraine has breathed new life into the transatlantic alliance. However, the relationship between the US and its European allies is becoming increasingly imbalanced.
The US economy now surpasses the EU and Britain in terms of wealth and dynamism, and this gap continues to widen. The repercussions extend far beyond living standards, as Europe’s reliance on the US for technology, energy, capital, and military protection gradually erodes any aspirations of “strategic autonomy” within the EU.
Back in 2008, the EU and US economies were roughly on par. But since the global financial crisis, their economic trajectories have significantly diverged. As highlighted by Jeremy Shapiro and Jana Puglierin from the European Council on Foreign Relations, “In 2008, the EU’s economy was slightly larger than America’s: $16.2tn versus $14.7tn. By 2022, the US economy had soared to $25tn, while the combined EU and UK economy had only reached $19.8tn. The US economy now boasts nearly one-third more growth, exceeding the EU’s size by over 50% when excluding the UK.”
The aggregate figures paint a disconcerting picture of Europe falling behind, sector by sector.
US giants like Amazon, Microsoft, and Apple dominate the European technology landscape. The world’s top seven tech firms, based on market capitalization, are all American. Only two companies from the EU, ASML and SAP, make it into the top 20. While China has fostered its own tech powerhouses, European champions are often acquired by American counterparts. Microsoft acquired Skype in 2011, and Google acquired DeepMind in 2014. The development of AI is also poised to be largely dominated by American and Chinese firms.
The EU is facing a shortage of leading universities that nurture tech start-ups, unlike the US. In the global rankings of top universities by Shanghai and THE, only one EU institution ranks within the top 30 (although Britain fares better with Cambridge, Oxford, Imperial, and others).
Europe’s share of the global semiconductor market has dwindled from 44% in 1990 to a mere 9% today, compared to America’s 12%. Both the EU and the US are striving to bolster their capabilities, but the US is expected to have 14 new semiconductor plants by 2025, while the EU and the Middle East will add only 10. In contrast, China and Taiwan are set to establish 43 new facilities.
To reverse this trend, both the US and the EU are implementing ambitious industrial policies that provide public financing and incentives for chip manufacturers and electric vehicle producers. However, the US enjoys an advantage with the dollar’s status as the world’s reserve currency, granting them the ability to finance their ambitions without market concerns. As one European industrialist explains, “They can just swipe the credit card.” The EU, on the other hand, has a smaller budget and has only recently started issuing common debt.
Access to private capital is also more abundant in the US. European reliance on US capital markets is nearly complete, according to Paul Achleitner, chair of the global advisory board at Deutsche Bank. He points out that Europe lacks the deep pool of large pension funds that contribute to the depth of US capital markets, emphasizing that “If you want to accomplish anything substantial, whether it’s an acquisition or an IPO, you always turn to American investors.” While the EU has discussed creating a “capital markets union” to match the scale of the US, progress has been sluggish.
Unlike the EU, the US benefits from ample and affordable domestic energy resources. The shale revolution has made America the world’s leading producer of oil and gas. In contrast, energy prices in the EU have surged, with the Ukraine conflict and the loss of inexpensive Russian gas resulting in European industries paying three to four times more for energy compared to their American counterparts. This disparity has already prompted concerns of factory closures in Europe among pessimistic business leaders.
There may be some in Britain tempted to view these circumstances as evidence that, within the EU, Britain was tied to a dying entity and that Brexit was a wise decision. However, outside the European single market, Britain is experiencing an amplified version of the scalability challenges that hinder the EU itself, resulting in the country’s industrial decline.
But are there truly no domains in which Europe excels as a global leader? Some proudly highlight the fact that the extensive size of the EU single market has compelled companies worldwide to adhere to European regulations, known as the “Brussels effect.” However, it would undoubtedly be more advantageous to lead the world in wealth creation rather than merely regulating it.
Europe does exhibit strength in “lifestyle” industries. Nearly two-thirds of global tourist arrivals are directed towards Europe, and European companies dominate the luxury goods market. European teams also dominate football, the world’s most popular sport, although many of the largest clubs are now owned by investors from the Middle East, America, or Asia.
Europe’s prominence in lifestyle industries underscores the enduring appeal of the continent for many individuals. However, this may also contribute to the problem at hand. Without a greater sense of urgency and perceived threat, Europe may never muster the resolve necessary to reverse its steady decline in power, influence, and prosperity.