For decades, the American and European economies have been heading in opposite directions.
In 1995, worker productivity in the U.S. and the EU was roughly the same. But today, European productivity is 20 percent below that of the U.S. And over the past 10 years, productivity growth in Europe has been less than half that in the U.S.
And this has translated into a growing disparity in the GDP of the two regions. The gap between GDP in Europe and the U.S. is now at 30 percent—having doubled over the past 20 years. In the third quarter of this year, for instance, GDP in the U.S. grew by 2.8 percent, but in the eurozone, by only 0.4 percent.
The majority of the world’s top 50 tech companies are American; only four are European. In the past decade, U.S. start-ups have taken on about five times more investment from venture capital than European start-ups have.
Germany, the largest economy in Europe, is on track to record a drop in GDP this year. Industrial production in Germany, once a leading driver—and global symbol—of European economic might, has fallen by 12 percent since 2018.
Neither do Europe’s short-term prospects look any better. In October, the International Monetary Fund revised its forecasts for GDP growth in 2025—adjusting its forecast for the U.S. upward, to 2.2 percent, while lowering it for the eurozone to 0.8 percent. How has Europe fallen so far behind?
Martin Wolf is the chief economics commentator for the Financial Times and the author of the 2023 book The Crisis of Democratic Capitalism. Wolf says the growing divergence between Europe and the U.S. is largely the result of superior American innovation. The long-term U.S. advantage in innovation has been powered by higher spending on basic research, greater investment in business, and more dynamic capital markets.
Europe’s relative economic weakness is meanwhile starting to make life appreciably harder for many on the continent. European companies’ poorer performance means a slowdown in tax revenues for European governments, which have responded by making regular cuts in public services—disproportionately affecting the vulnerable who depend on them most. At the same time, worse business performance has translated into stagnant wages for people making average or below-average incomes. And with the dramatic rise in inflation following the Covid pandemic, millions of Europeans are now struggling more and more to get by …
Michael Bluhm: Where would you start, in understanding why Europe has struggled to stay competitive?
U.S. Department of Energy
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