Europe may still look like a thriving civilization, but it too often behaves like one living off accumulated capital. Its comfort, order, and beauty disguise a harsher reality in which the continent is losing the capacity to turn wealth into power. Its capitals are monuments to past ambition where tourists come to admire what Europeans once built. Meanwhile, contemporary Europe struggles to build almost anything of comparable consequence. The polite way to describe Europe’s decadent condition is that it faces a “competitiveness challenge,” as Mario Draghi, the former prime minister of Italy, said in his 2024 report on European competitiveness. The less polite version is simpler: Europe has become an open-air museum that exhibits the achievements of a civilization that no longer has the will to achieve new triumphs.
The scale of Europe’s relative decline is visible across GDP, corporate power, and technological leadership. In 2024, the European Union’s GDP was about $19.5 trillion, compared with $28.8 trillion for the United States. The EU grew only 1.1% in 2024, compared with 2.8% in the United States and 5.0% in China. Chipmaking giant NVIDIA has a larger market capitalization than Europe’s 20 largest companies combined and Germany’s entire economy. Europe, while not yet poor, has drifted from the center of global economic gravity.
The continent’s deeper problem is its spiraling productivity. A 2025 OECD report declares that EU productivity growth has been weak due to low capital formation, rigid labor markets, trade barriers between the member states, low business dynamism and turnover rates, and a bank-based financial system that fails to channel savings toward young, innovative firms. A Financial Times analysis shows that since 2019, US output per hour has surged by 6%, compared with roughly 1% in the eurozone and the UK. Since 2000, EU labor productivity growth has run about half a percentage point lower per year than in the United States. That may sound like a small difference, but compounded over decades, it is the difference between a continent that leads and one that lectures.
Draghi’s report identifies the central wound: Europe missed the digital revolution. The report argues that the key driver of the widening EU-US productivity gap has been technology, and that Europe risks falling further behind. Draghi warns that more than half of European small businesses identify regulatory burdens as a major obstacle. He points out that the EU relies on foreign countries for over 80% of its digital products, services, infrastructure, and intellectual property. Industry estimates suggest the EU issued roughly 13,000 regulations between 2019 and 2024 compared with around 5,500 in the United States. Draghi thinks smaller and medium-sized businesses must reduce their reporting obligations by half to achieve more technology investments. As a Bloomberg analysis has shown, technology stocks account for 8% of the Stoxx Europe 600, compared with 42% of the S&P 500. Semiconductors, in particular, account for 3.5% of the European benchmark, versus 18% for both the S&P 500 and the MSCI Asia Pacific. Only four of the world’s fifty largest technology companies are European. The continent regulates platforms it did not create, taxes wealth it increasingly fails to generate, and congratulates itself on protecting consumers from innovations born elsewhere.
Europe’s labor market presents another museum exhibit. The official justification for Europe’s strict employment protection is that it defends human dignity, shielding workers from arbitrary dismissal and preventing firms from treating labor as disposable. Those are morally worthy goals, but the effort to achieve them has resulted in economic sclerosis. When it is difficult to fire workers, firms become reluctant to hire, restructure, invest in capex, or take risks more broadly. Fendotenkov et al. (2023) find that stricter labor protection in the EU reduces productivity growth, especially in high-skill sectors where firms need flexibility during crises or periods of recovery.
Europe has also become militarily weak due to the decades it has spent outsourcing its security to the United States. Even after Russia’s shocking invasion of Ukraine, EU defense spending in 2024 reached only 1.9% of GDP, only recently meeting NATO’s long-standing 2% target. The United States has consistently spent far more than Europe and still accounts for roughly 60% of total NATO defense spending. More importantly, Europe depends on America not merely for money but for capabilities, including satellite intelligence, strategic airlift, nuclear deterrence, command-and-control systems, and long-range missile defense systems. NATO officials have also noted that approximately 80,000 U.S. troops remain stationed in Europe, and recent discussions about even modest troop reductions caused alarm across European capitals. One recent IISS defense assessment estimated that replacing key American military contributions would cost Europe roughly $1 trillion, a sum that would require countries to routinely spend over 3% of GDP. This is simply not something that Europeans are willing to do, given current budget statistics and growth projections.
As of now, the EU imports 57% of the energy it needs and over 90% of the oil and gas it consumes, leaving it vulnerable to external supply shocks, as seen with the Iran War and the Russo-Ukraine War. Much of Europe’s energy issues can be attributed to its green-energy obsession, which has been one of the largest capital-allocation decisions the continent has made. The EU now spends roughly $370 billion a year on clean energy, more than the United States at just over $300 billion, and nearly double in % of GDP terms. Yet despite this enormous investment, Europe has not produced the cheap, abundant energy needed to support industrial power. The International Energy Agency found that household electricity prices in the EU rose 36% between 2019 and 2024, compared with 26% in the United States, and that electricity prices for energy-intensive European industries remain roughly twice U.S. levels and about 50% higher than China’s. At the same time, governments have restricted domestic fossil-fuel production before reliable substitutes were fully in place. Denmark ended new North Sea oil and gas exploration and committed to phasing out production by 2050, while the United Kingdom has moved to stop issuing new licenses for new oil and gas fields. Then, when Russia’s invasion of Ukraine exposed Europe’s dependence on imported energy, governments were forced into emergency reversals: Germany built LNG terminals, considered extending nuclear power, and brought coal back into the mix. In practice, Europe’s energy transition has become a competitiveness tax, as the continent devotes a larger share of its economy to clean-energy investment than the United States does, yet still leaves its firms paying far more for power.
Europe’s own leaders know that the continent cannot remain strategically dependent on the United States, technologically dependent on American and Asian firms, and economically dependent on slow-growth welfare states while still claiming to be a global power. Draghi called for massive investment, capital-market integration, cheaper energy, defense-industrial renewal, and regulatory simplification. Achieving the goals outlined in his report would require an additional minimum of €750-800 billion in annual investment, equal to roughly 4.4-4.7% of EU GDP in 2023. By comparison, Marshall Plan aid from 1948 to 1951 amounted to only about 1-2% of EU GDP. Independent reports show that only 11.2% of Draghi’s recommendations have been fully implemented, with barely anything in energy or digitalization addressed so far. Brussels has responded to Draghi’s report with its own “Competitiveness Compass,” which has made credible but insufficient investments in AI infrastructure and defense, and barely any in energy or deregulation.
Europe’s defenders will say this critique ignores Europe’s ‘superior’ quality of life. They are right that Europe is pleasant. That is the point. Museums are pleasant, clean, curated, and full of beautiful things. But nobody confuses a museum with a living, productive workshop. A serious Europe would complete the single market in services, integrate its capital markets, make hiring and firing easier, reduce energy dependence, abandon the green-energy obsession, build defense capacity, reward work over dependency, and invent its own technology rather than merely regulate American innovation. That Europe would matter.
Image Credit: Barack Obama with European leaders at the United Nations Climate Change Conference in Copenhagen – Wikimedia Commons
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