The decline of Europe

The 2008 financial crisis indiscriminately tore through the global economy like a hurricane, leaving few areas of the world unscathed. Europe and the United States were among the hardest hit, with both economic powerhouses losing around 5% of their respective gross domestic product in the initial hit. Unfortunately for Europe, this is where similarities end. As everyone emerged from the wreckage, some economic regions underwent robust growth spurts, while others were left in the dust.

The raw numbers

Taking 2009 as a starting point, comparing the growth figures of the United States and those of the European Union puts the economic recovery of both blocs in stark contrast. In nominal USD terms, US GDP grew from $14.5 trillion in 2009 to 30.8 trillion in 2025. Figures courtesy of the IMF. A 112% gain. On the other side of the Atlantic, the story is very different.

Since 2009, the European Union has lost the United Kingdom and gained Croatia. To maintain consistency, we will exclude both of these countries from the figures. From this point onwards, the European Union, or EU, refers to the remaining 26 countries.

In nominal USD terms, the European Union had a GDP of $14.8 trillion in 2009, putting it neck-and-neck with the United States. Sixteen years later, European GDP had risen to just $21.1 trillion, meaning the EU economy is now only two-thirds the size of the US. Accounting for inflation, the US grew by 42% between 2009 and 2025, while the EU shrank by 4% over the same time frame.

Exchange rate corrections

Of course, people will be quick to point out that comparing growth figures in dollars makes no sense given that European GDP is not priced in USD, and they would have a point. The euro has fallen significantly against the dollar since 2009, making the above figures look worse. Eurozone countries currently contribute 85% of European Union GDP, making the common currency a reasonable benchmark for looking at EU growth. In euros, the European Union grew 76% in nominal terms, which equates to 23% growth in real terms. Even when accounting for exchange rates, American growth was almost double that observed in Europe.

The argument in favour of judging EU growth in euros is not necessarily very sound either. Exchange rates fluctuate because of real-world dynamics. The euro has fallen against the dollar for many of the same reasons that US growth surpassed EU growth. The European Central Bank maintained low rates on the euro in order to support a more fragile economic recovery, something that the Fed did not have to do to the same extent. The Eurozone debt crisis also affected exchange rates by causing major selloffs in the euro. If using USD exclusively is unfair, so too is using a full exchange rate correction. The truth lies somewhere in the middle. Either way, the undeniable fact of the matter is that US growth has eclipsed EU growth since the financial crisis.

Comparing GDP per capita does not help the European case much. The EU population has grown by 3% since 2009, whereas the US population has grown by around 13%. The difference does indeed dilute the American share of wealth generation, although not enough to make much of a dent. Per capita growth is still much higher in the United States, just not quite by the same degree as the aggregate figure would suggest.

Decline of the old guard

Looking deeper into the structure of the EU, the picture becomes even more troubling. Eastern European countries are growing faster than their Western European counterparts, as would be expected. The problem is that when analysing the more established contingent of the EU, the “big four” of Germany, France, Spain and Italy, growth rates are even less impressive. Between 2009 and 2025, the big four grew 30% in nominal USD terms, or 60% in nominal euro terms. Accounting for inflation, this translates to -13% in real USD growth and 12% in real euro growth. A reminder that the US grew by 42% in comparison.

The last batch of figures exposes the vast chasm between the two regions. The story cannot be interpreted in any other way. There are no excuses left. Western Europe dropped the ball.

The Draghi report

Europe knows this, which is why the EU commissioned a strategic document to address such concerns, which resulted in *The Future of European Competitiveness* in September 2024. The findings are commonly referred to as the Draghi report, named after the former Italian Prime Minister who authored it. The report is freely available for anyone to read and contains some absolutely scathing statements in the opening pages. The second paragraph brutally establishes the following:

*“Europe’s households have paid the price in foregone living standards. On a per capita basis, real disposable income has grown almost twice as much in the US as in the EU since 2000.”*

These words were not spat from the mouth of a vindictive external critic; they come from a former president of the European Central Bank. In equally succinct terms, the report immediately identifies the source of European complacency: “the safety of the US security umbrella freed up defence budgets to spend on other priorities”. The problem with European stability is that it is entirely dependent on foreign powers: natural gas from Russia, crude oil from the Middle East, international shipping lanes policed by the US Navy and 100,000 American troops stationed across the continent. The lack of energy security is simply unacceptable, a vulnerability unbecoming of any supposed global power.

Stability is far from the only problem. While Mr Draghi highlights the need to increase security and reduce foreign dependencies, he spells out two other major areas of concern.  The first is European electricity prices, which are 2-3 times higher than in the US. Natural gas prices are even more egregious, often subject to a 4-to-5-fold premium. This discrepancy is partly explained by the differences in natural resources, but not entirely. As the report points out, common energy market rules are a major contributor to higher prices, as are carbon taxes. Such obstacles could be dismantled with relative ease should EU leaders demonstrate the willingness to do so.

The innovation gap

The final area of concern is harder to address. There is now a colossal innovation gap between the US and the EU. The world’s largest technology companies are overwhelmingly based in the United States. The seven largest US tech companies, commonly called the magnificent seven, are twenty times bigger than the seven largest European companies. They also generate ten times more revenue. Of the top 50 tech companies, around 35 are based in the United States, while only 4 are based in Europe. European companies do not have a seat at the big tech table; they are not even in the room; they are outside the building, cleaning the windows. ASML is the notable exception.

The funding element is self-reinforcing. Far more capital washes around the American tech scene compared to its European complement and the US continues to spend more proportionally, meaning the investment gap is only going to widen. Europe largely missed out on the digital revolution led by the internet and the productivity gains it brought. Words from the Draghi report once again.

The difference in outcome is no accident. The European regulatory landscape is more difficult to navigate; taxation is more punitive; funding is harder to secure. All these points could be developed further but it may be more efficient to view each one as merely a symptom of the European mindset. One side of the Atlantic seeks to build; the other seeks to manage. One side tries to innovate; the other tries to regulate. One side acts; the other side reacts, often glacially.

The pioneering spirit is gone. Decades of stagnation have produced a crippling attitude of learned helplessness. Governance has been reduced to managed decline. Genuine leadership has not been observed in a generation. The continent has accepted its fate and is resigned to bow out with what remaining dignity it can muster. The UK was excluded from the above figures for consistency, but Britain absolutely falls into the same bracket.

Marshall Aerospace

Ending on a perfectly illustrative example, let us turn to the tragic case of Marshall Aerospace. Marshall Aerospace was founded in 1909 in Cambridge and is mostly known for its long-standing expertise in maintaining and repairing the Lockheed Martin C-130 Hercules plane. A few weeks ago, the company announced that it was exploring options for its long-term future, which may include selling the business. The UK government recently abandoned its fleet of C-130s, heavily denting Marshall’s future prospects. While the company has expanded into the drone sector, with promising results, Marshall Aerospace is currently sitting on vast tracts of land, ready to be snapped up by housing development firms. Plans to relocate to another area in England were under consideration for a while, but have since collapsed due to budget concerns. As of the time of writing, the company is for sale. The loss of a 117-year-old aerospace titan is being treated as a property development opportunity.

In all likelihood, an American giant such as Lockheed or Raytheon will swoop in and relocate the entire operation to somewhere in the US. The process is far from uncommon. In 2022, Meggitt Ltd, an aerospace sub-systems company based in Coventry, was acquired by Parker-Hannifin, a manufacturing firm from Ohio. The same year, Ultra Electronics, a company specialising in military sonar was acquired by Cobham, which was itself bought by American private equity firm Advent International in 2020. Last month, Senior PLC agreed to a £1.4 billion takeover by Tinicum and Blackstone, a California-based industrial specialist and an investment management company based in New York, respectively. The deal is expected to go ahead tomorrow.

An irreversible shift

The tragedy of losing companies such as Marshall Aerospace is not purely financial. The loss of jobs, apprenticeships and skills will be felt for many years. Even more importantly, such losses chip away at a nation’s ability to act independently. Europe’s loss, America’s gain. The budget gap, in both the public and private sectors, means that US firms can snap up foreign assets with minimal pain to their books, further consolidating power and influence. The US defence budget topped $1 trillion this year, dwarfing all other nations on Earth. A defence budget is not merely for buying tanks and bullets; it finances entire sub-industries, each providing jobs, supply chains, as well as research and development funds. As a side note, Amazon’s R&D costs were over $100 billion last year, surpassing most European defence budgets.

Innovation rarely comes from the public sector these days. Development moved away from universities and confidential government-funded labs to corporations that often have more weight than entire nation states. From NASA to SpaceX. From DARPA to the magnificent seven. With money comes power; with power comes influence. If Elon Musk makes a decision on content moderation via the Starlink satellite constellation, it affects more people than any bill or law ever could. Once again, private companies moving abroad results in more than just a loss of money, it results in a loss of influence. An argument could be made that the observed consolidation of power relates less to national sovereignty and more to an emerging neo-feudalism, but in the immediate term, the visible economic shift more than adequately tells the tale.

When playing the board game “Risk”, there comes a turn when it becomes obvious that one of the players has won. The remainder of the game is simply an exercise in cleaning up the board. We have reached that time.