European Market Challenges vs. US Market Opportunities

1) The gap—what the headline numbers tell us

• Since the global financial crisis, nominal GDP has diverged sharply: 2008→2023 EU +13.5% vs. U.S. +87%; the EU’s economy fell from 110% of U.S. GDP in 2008 to ~67% in 2023 (World Bank, summarized neatly by EconoFact). (Econofact)

• On a population-adjusted basis, EU GDP per capita has slipped materially relative to the U.S., with the exchange-rate swing since 2021 amplifying the nominal gap (World Bank). (World Bank Open Data)

 

2) Why the gap widened (structural forces)

a) Productivity & tech scale

• Draghi’s competitiveness review calls out Europe’s tech under-scale: only 4 of the world’s top 50 tech firms are European; the EU’s share of global tech revenues shrank 2013→2023. That is shorthand for a smaller, slower-growing, lower-margin ICT base—the sector that powered U.S. productivity. (European Commission)

• Independent work on productivity shows a long deceleration in Europe’s TFP growth (roughly ~0.8% in 2018–2022 vs >2% in the late 1990s), limiting catch-up momentum. (ECIPE)

b) Business investment & intangibles

• Post-pandemic capex momentum: U.S. business investment +15.4% (Q4’21→Q4’24) vs euro area +6.8%—a material gap that compounds over time. Intangible investment (software, R&D, data) is a key driver on the U.S. side. (European Central Bank)

• U.S. industrial policy catalysed a construction “super-cycle”: real manufacturing construction spending doubled since late 2021 (Treasury) and rose from $79B → $236B (Jun’21→Jun’24) per Census/Boston Fed, led by semis/batteries. (U.S. Department of the Treasury, Federal Reserve Bank of Boston, PIIE)

c) Capital markets depth & scale-up finance

• Europe remains bank-centric; listed equity ≈ 68% of GDP in the EU vs ~170% in the U.S.—a stark indicator of shallower public equity and risk capital. That fragmentation makes late-stage financing harder and dearer. (European Parliament)

• VC over two decades grew fast in Europe but remains much smaller in absolute terms: $426B raised in Europe in the last decade vs $1.2T in the U.S. (Atomico). (stateofeuropeantech.com)

d) R&D intensity

• Total R&D (GERD) intensity: EU ~2.22% of GDP (2023) vs U.S. ~3.6% (2022). The private-sector gap is even wider (EU business R&D ≈1.3% of GDP vs U.S. ≈2.4%). Higher business R&D correlates with faster productivity and better tech scale-ups. (European Commission, CEIC Data, European Central Bank)

e) Energy & input costs

• Even after wholesale prices eased, final industrial power and gas prices remain far higher in Europe than in the U.S. (2023: electricity +158%, gas +345% vs U.S.). That dents margins for energy-intensive manufacturing and deters reinvestment. (Bruegel)

f) Demographics & labor supply

• The EU is older (median age 44.7; 21.6% aged 65+) and faces shrinking working-age cohorts, putting a ceiling on potential growth without productivity offsets. (European Commission)

• The U.S., by contrast, relied on net immigration for ~84% of 2023–24 population growth—supporting labor force and demand, and enabling bigger home markets for scale. (Census.gov)

 

3) Investment gap—what the numbers look like when you zoom in

• Scale-up finance: shallower equity markets and pension allocations translate into thinner late-stage funding. Europe’s IPO proceeds improved in 2024 but remain far below U.S. levels; the pipeline is still rebuilding. (White & Case LLP)

• Digital/tech adoption: only ~45% of EU enterprises bought cloud services in 2023—solid progress, but late relative to U.S. frontier firms, and a proxy for slower diffusion of AI/software capex. (European Commission)

• Public policy follow-through: a year on, research suggests only ~11% of Draghi’s 383 recommendations have been fully enacted—evidence that execution risk is real even when the diagnosis is correct. (Financial Times)

 

4) What would actually narrow the gap (Draghi + common sense)

• Capital Markets Union (CMU) “with teeth”: single-listing regime, harmonized insolvency/tax, and pension reforms to channel savings into growth equity and VC—so European firms can scale before they sell or list abroad. (European Parliament, European Commission)

• Intangibles push: targeted super-deductions/credits for software, data, and AI adoption alongside higher business R&D intensity. (European Central Bank)

• Energy cost reset: accelerate grid build-out, capacity markets and contracts-for-difference, and strip non-system levies from industrial tariffs to close the electricity cost gap. (Bruegel)

• Single market 2.0 for services & digital: reduce fragmentation that keeps European service sectors (including healthtech/biotech software) subscale. (European Commission)

• Talent policy: fast-track high-skill visas/recognition and boost participation of older and female workers to offset ageing drag. (European Commission)

 

5) Practical takeaways for European firms choosing where to invest/grow

• Cost-of-capital is lower and growth equity deeper in the U.S., so scaling capital-intensive or software-platform models is generally faster—especially where network effects matter. (European Parliament)

• Energy-intensive manufacturing and data-center-adjacent plays currently enjoy a more favorable U.S. capex climate (permitting + incentives + cheaper energy), though policy uncertainty has risen; check state-level packages carefully. (Federal Reserve Bank of Boston, U.S. Department of the Treasury)

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