The European economy is doomed to stagnation without a new vision

One The project union In an opinion piece on Wednesday, the economist said long-term productivity growth in advanced economies depends on structural change, driven by technological innovation.

“Herein lies Europe’s main problem: in a number of fields, from artificial intelligence to semiconductors to quantum computing, the US and even China are leaving Europe in the dust,” he wrote.

Europe’s underperformance has been going on for years. In 2008, US GDP and Eurozone GDP were roughly equal. Now, the US economy is about 75% larger than that of the Eurozone, according to World Bank data.

Of course, currency fluctuations skewed the numbers. Adjusted for purchasing power, EU output has fallen by just 4% relative to the US over the past 20 years. And even in Europe’s weakest major economy, German consumers are still feeling upbeat.

Meanwhile, investors increasingly recognized an era of “American exceptionalism” in the global economy and financial markets.

This is in contrast to Europe’s growing status as a leisure hub, so much so that the overwhelming hordes of tourists have sparked a backlash among locals fed up with tourists clogging streets, driving up prices and occupying homes.

Spence, who is a senior fellow at the Hoover Institution, blamed Europe’s innovation deficit on underinvestment in an already decentralized research and development landscape, incomplete integration of the single market, a lack of key infrastructure such as computing power and availability limited by venture capital and private equity funds.

Europe can overcome these obstacles and has important advantages, such as the talent that comes from its universities and a social safety net that provides the economic security needed to take entrepreneurial risks, he noted.

Without a new economic vision, however, traditional industrial sectors that are less innovative will continue to dominate, while the best and brightest will migrate to other countries, he warned.

“Europe must decide: it can stay on the current course, which will surely lead to relative stagnation, or it can chart an entirely new path,” Spence wrote. “The latter approach is riskier, but also has much higher growth potential.”

But that choice doesn’t seem to be top of mind with policymakers or voters, he said, urging leaders to offer a clear picture of what the status quo or a new economic vision would bring.

Europe can do this and has already been successful in targeting new models of sustainable growth, he pointed out.

“But first, Europeans need to answer a simple but critical question: what should the EU look like – in terms of innovation, economy, security and resilience – in a decade?”

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