The world is being remade in Silicon Valley’s image while the EU watches from the sidelines
You can tell the recent history of the European economy in two figures.
In 1992, adjusting for spending power, a GDP per capita of $44,933 (£35,530) meant the average German was a little better off than the average American, with a lead of $257.
In 2024, the American is almost $12,000 ahead. Germany’s economic failure is startling when taken on its own. Put into the context of wider European stagnation, it tells the story of a continent-wide tragedy.
In 2008, American GDP per capita was a little over $14,000 higher than the EU equivalent. In 2023, it’s almost $20,000 higher. The US has grown 21pc; the EU, with all the advantages of catch-up growth across a wider area, 15pc. Despite containing 100m more people, the EU economy is now smaller in value than the American one, squandering by 2020 a lead that was over $3 trillion in 1990.
For a generation of European politicians, the idea of “strategic autonomy” – the ability of the EU to act as a bloc without dependence on other countries – has taken on a totemic significance.
In typically strident terms, French president Emmanuel Macron declared earlier this year that “our Europe is mortal. It can die, and it all depends on our choices”. The period when “the EU bought its energy and fertiliser from Russia, outsourced its production to China, and depended on the US for security” was over.
If this vision of independence is to be realised, however, Europe needs to be able to provide for its own army, build its own industry, and maintain its own competitiveness in new fields, rather than simply riding the coattails of the United States as it cements an insurmountable lead in the technologies of the future.
Take AI, for example. The European Court of Auditors has claimed that the results of Europe’s effort in this area “will likely determine the path of the EU’s future economic development”. And over the first half of 2024, of the $35bn poured into AI start-ups globally, the EU managed to attract 6pc.
Moreover, some countries appear to be totally blind to the scale of the problem. In an act of staggering self-harm Germany went through with the closure of three operating nuclear plants last year. The contrast in approach with America, where energy-hungry Microsoft is seeking to finance the reopening of shuttered units at Three Mile Island – home of the most infamous civil nuclear accident in US history – could not be more stark.
On top of energy costs, European regulators have developed a nasty habit of piling red tape on to businesses trying to grow. As former president of the European Central Bank (and Italian prime minister) Mario Draghi pointed out, the EU passed 13,000 pieces of legislation between 2019-2024, not including the laws passed by individual member states. The US, meanwhile, managed around 5,500. In Denmark, he notes, between Brussels and Copenhagen, the number of regulations facing businesses rose 63pc from 2001 to 2023.
For start-ups, these laws can be particularly burdensome. The new AI Act, in particular, could have a chilling effect on companies looking to develop products in the EU, and pile compliance costs on to firms yet to turn a profit. The much loathed GDPR is not a great deal better.
All of this is to the great frustration of some in Europe. The current Hungarian presidency of the EU council has repeatedly tried to bring the bloc’s attention to its failure to deliver growth, and indeed the Budapest Declaration signed by EU leaders earlier this month (following on from Draghi’s report) sets out a series of steps aimed at “allowing business to flourish without excessive regulation”.
Achieving this, however, will take a fundamental reordering of the EU. Regulation is hardwired into the EU’s self-concept, and indeed some policymakers have consciously embraced the idea of the bloc as a “regulatory superpower”. By leveraging the considerable size of the European market, they hope to cajole companies overseas into following rules set in Brussels, pursuing the bloc’s interests and delivering some of the benefits of economic dynamism without the hard work.
The results of this approach have been mixed. Some European standards have been adopted around the world, and the bloc has been able to extract large fines from American firms deemed to have transgressed.
At the same time, Nvidia has roughly the same market cap as the 18 largest EU companies put together, the bloc’s tech sector appears to be moribund outside of semaglutide manufacturer Novo Nordisk, Spotify, and the Dutch machine maker ASML, and the world is being remade in Silicon Valley’s image while the EU watches from outside.
For all its grand talk, the EU will not have “strategic autonomy” if it ends up as the rump of a China-dominated continent, or a vestigial appendage to a wider American sphere of influence – a charming, economically stagnant theme park for wealthy tourists.
Avoiding that scenario requires domestic capabilities – rather than allowing rivals to run away with world-shaping technological developments – and meaningful economic growth. DT.
