Europe has fallen behind America and the gap is growing

Compiled 21 June 2023, updated 28 October 2025

Europe has fallen behind America and the gap is growing

From technology to energy, from capital markets to universities, the EU cannot compete with the US

GIDEON RACHMAN 19. JUNE 2023

The war in Ukraine has revived the transatlantic alliance. But the relationship between the US and its European allies is increasingly unbalanced. The US economy is now considerably richer and more dynamic than the EU or Britain – and the gap is growing.

This will have an impact far beyond relative living standards. Europe’s dependence on the US for technology, energy, capital and military protection is steadily undermining any aspirations the EU might have for ‘strategic autonomy’.

In 2008, the EU and US economies were roughly the same size. But since the global financial crisis, their economic fortunes have dramatically diverged. As Jeremy Shapiro and Jana Puglierin of the European Council on Foreign Relations .

In 2008, the EU economy was slightly larger than the US economy: $16.2 trillion versus $14.7 trillion. By 2022, the US economy had grown to $25 trillion, while the EU and the UK together had only reached $19.8 trillion.

The US economy is now almost a third larger. It is more than 50 per cent bigger than the EU without the UK’. The aggregate figures are shocking. Underlying them is a picture of a Europe that has fallen behind, sector by sector.

The European technology landscape is dominated by US companies such as Amazon, Microsoft and Apple. The seven largest technology companies in the world, by market capitalisation, are all American.

There are only two European companies in the top 20: ASML and SAP. While China has developed domestic technology giants of its own, European champions are often acquired by American companies. Skype was bought by Microsoft in 2011; DeepMind was bought by Google in 2014. AI development is also likely to be dominated by American and Chinese companies.

Major universities feeding the pipeline of tech start-ups in the US are missing in the EU. The Shanghai and LE rankings of the world’s best universities both have only one EU institution in the top 30. (Britain does better – courtesy of Cambridge, Oxford, Imperial and others.)

In 1990, Europe produced 44% of the world’s semiconductors. This figure is now 9%; compared to America’s 12%. Both the EU and the US are rushing to develop their capacities.

But while the US is expected to see 14 new semiconductor plants come on stream by 2025, Europe and the Middle East will only add 10, compared to 43 new plants in China and Taiwan.

Both the US and the EU are trying to turn this around with ambitious industrial policies that provide public funding and incentives for chipmakers and electric vehicle manufacturers. But the dollar’s status as the world’s reserve currency gives the Americans the ability to finance their ambitions without scaring the markets. As one European industrialist put it: ‘They can simply swipe their credit card’.

The EU, on the other hand, has a much smaller budget and has just started to issue common debt.

Private capital is also much more readily available in the US.

Paul Achleitner, chairman of Deutsche Bank’s global advisory board, says that Europe is now ‘almost totally dependent on the US capital markets’. He tells me that Europe has very few of the large pension funds that give depth to the US capital markets, adding that: “If you want to do something sizeable – whether it’s an acquisition or an IPO – you always go back to US investors.”

The EU has talked a lot about creating a ‘capital markets union’ to give Europe some of the scale of the US. But progress has been weak.

Unlike Europe, the US also has abundant and cheap domestic energy supplies. The shale revolution means that America is now the world’s largest producer of oil and gas. Meanwhile, energy prices in Europe have skyrocketed. The war in Ukraine and the loss of cheap Russian gas mean that European industry typically pays three to four times more for energy than their American competitors.

Gloomy European leaders say this is already leading to factory closures in Europe.

Some in Britain might be tempted to see this as proof that, within the EU, Britain has been ‘chained to a corpse’ and that Brexit was a good move. But outside the EU single market, Britain suffers from an exaggerated version of the problems of scale that are hampering the EU itself. As a result, British industry is already lagging behind.

Are there really no areas where Europe is a world leader? Some proudly point to the fact that the size of the EU single market means that companies around the world have had to adopt European regulations – the so-called ‘Brussels effect’. But it would clearly be better to lead the world in wealth creation than to regulate it.

Europe outperforms in ‘lifestyle’ sectors. Almost two thirds of the world’s tourist arrivals are in Europe. The luxury goods market is dominated by European companies. Football, the world’s most popular sport, is dominated by European teams, although many of the biggest clubs are now owned by Middle Eastern, American or Asian investors. Europe’s dominance in lifestyle industries underlines that life on the old continent is still attractive to many. But perhaps that is part of the problem. Without a greater sense of threat, Europe may never summon the will to reverse its inexorable decline in power, influence and wealth.

Large retailers have long since confirmed this, compared to what is happening in the US, where Walmart exerts unchallenged leadership.

Read also :

Walmart raises its sales forecast thanks to strong revenue and e-commerce growth

Stuck in the 1980s: why European retail giants can’t keep up with Walmart’s digital revolution

How Walmart built the biggest threat Amazon has ever faced

Retail: a good look at the widening gap between the US and Europe

Below: the growth of social spending, GDP (GDP) and defence in 12 European NATO countries (The Economist October 2025), where it is clear that the policy of these countries has not been aimed at economic growth but rather at meeting needs in terms of health care, rent-controlled housing, social security, pensions, education through scholarships, etc.