Europe Is Losing

European nations have fallen far behind in economic dynamism and military clout. Will the continent that once ruled the world become a bystander to history?

By David Luhnow and Tom Fairless of The WSJ. Excerpts:

"The continent’s economies have been largely stagnant for about 15 years, likely the longest such streak since the Industrial Revolution, according to calculations by Deutsche Bank. Germany’s economy is 1% bigger than it was at the end of 2017, while the U.S. economy has grown 19%."

"Europe’s share of global economic output, measured in current dollars, fell from roughly 33% to 23% between 2005 and 2024, according to World Bank data. Much of that relative decline is due to the rise of China and India (and is less drastic using other measures of output), but the U.S. share of global output held up much better. Europe’s proportion of the global economy is now likely the lowest since the Middle Ages"

"European household wealth has grown by a third as much as Americans’ since 2009. Per capita GDP in the U.S. is now $86,000 a year, versus $56,000 for Germany and $53,000 for the U.K."

"Americans . . . have over 50% more living space on average per person. More than four in five Americans have air conditioners and clothes dryers at home, compared with between one-fifth and one-third of Europeans. Executive assistants in New York City earn around the same as specialist doctors in London."

"The average European is nearly 45 years old, compared with 39 for the average American, and the continent’s working-age population is predicted to fall by nearly 50 million by 2050"

"But Europe’s lack of economic dynamism has deeper roots, too. Taxes and regulations have risen inexorably; the volume of EU regulations has doubled since 2010. Sprawling rules protect old buildings, incumbent firms and aging consumers, limiting the creation of new infrastructure and industries. As Italy’s prime minister Giorgia Meloni puts it, “America innovates, China imitates, Europe regulates.”

Red tape in Britain is so bad that it took electricity firm Scottish Power 12 years to get permits for a high-voltage transmission line across Scotland. A project to build a new tunnel under the Thames river outside London has so far spent $340 million just on planning permits—documents that total 359,000 pages. Games Workshop, a fast-growing gaming company, is facing delays to build a new parking lot on its headquarters because a single bat lives there."

"In Germany, industrial electricity costs three times as much as in the U.S.; in the U.K., four times as much. Britons now consume less electricity per person than the Chinese, and Germany’s overall electricity consumption is lower than it was before the Berlin Wall fell. Yet Germany has banned nuclear energy, and the U.K. has scrapped new offshore oil and gas exploration."

"“In many sectors, Europe is uninvestable,” says Peter Huntsman, the CEO." [of Huntsman Corp., a Texas-based chemicals manufacturer]

"Ten years ago, four European companies ranked in the global top 10 by revenues. Today, the continent’s biggest company by market value, German software firm SAP, ranks 28th. America’s share of global stock market valuations has held steady at 48% since 2000, but the EU’s has fallen from 18% to 10%, and the U.K.’s from 8.3% to 2.6%"

"Mario Draghi, a former top European central banker, proposed a series of such steps in a landmark EU report last year, including pan-European capital, savings and energy markets; a lower regulatory burden on startups" [to "exploit economies of scale and unleash entrepreneurial vigor"]

"National trade unions and industrial lobbies often don’t want competition from neighboring European firms and workers, so they block the completion of Europe’s single market. While the EU has harmonized many regulations, national rules vary when it comes to business and professional licenses, taxes, and environmental and health standards. These frictions make it harder for a German consultant or electrician to work in France, for example, or for an Italian food producer to sell goods in Spain."

"Yet Germany’s roughly $1 trillion sugar rush of new spending won’t change the underlying dynamics of a manufacturing sector struggling with sky-high energy prices, greater competition from China and too much red tape. “You will get some splashy highways, but it’s not the treatment that will fix what’s wrong with the German economy,” said Robin Brooks, an economist at the Brookings Institution."

"the continent has been better at allowing in low-skilled asylum seekers and their families than high-skilled engineers and doctors."

"Tax revenue as a share of economic output is already around 38% in Germany, 43% in Italy and 44% in France, compared with 25% in the U.S."

"Sweden has quietly spurred economic growth by cutting back its welfare state—tightening government spending, revamping the pension system and slashing corporate and personal tax rates. Per capita incomes are now climbing, and the country has seen a burst of entrepreneurship. Sweden even moved ahead of the U.S. in the number of billionaires per capita, thanks to a thriving tech startup scene and a video-game industry"

"Europeans consistently vote for politicians who protect the status quo and expand the welfare state"

"In France . . . government spending is around 57% of GDP, compared with 36% for the U.S."