Why the US is growing and the EU is not

“Can the European economy ever hope to compete with the U.S. economy?” is the title of an articulate, in-depth article that takes up a full page in today’s Financial Times. A question that appears rhetorical from the title because the answer is  a simple, clear no.

In fact, the results are blatant, as Liturri notes on Startmag: starting with the results and then going back to the causes, there is a chasm between the two areas today. One figure above all: compared to the pre-pandemic level, U.S. GDP grew by 8.7 percent, more than doubling the modest 3.4 percent growth recorded in the Eurozone. Per capita income at purchasing power parity is about 30 percent lower than in the US. The key lies in the level of investment, particularly in advanced digital technologies, where the U.S. is grinding out records in terms of patents filed. Compared to the pre-pandemic level, overseas investment growth was 8%, while in the eurozone we are still at -4%.

Low levels of consumer confidence, languishing public and private investment (hand in hand with a high savings rate), and a congealed labor market are the first causes listed. And productivity is a faithful mirror of the investment gap: in the U.S. it runs, in the eurozone it stagnates.

The solution is to invest in artificial intelligence. Easy; how could we not have thought of this before? At the Ft., they are not afraid to lapse into sports bar anecdotalism when they cite the example of a “chatbot” at Siemens helping to troubleshoot machine operations. Too bad that the person proposing all this wonder is the head of Microsoft Europe, “perhaps” in slight conflict of interest.

Furthermore, there is an issue with the restrictive regulations that the European Commission already put in place with the AI Act. Through a great deal of ambiguity, the EU managed to regulate a technology that was still in its infancy and whose possible advancements were unknown, which ultimately serves to impede development.

They don’t even spare us the usual rant about big companies investing in research and development, while medium-sized ones are still in the era of the discovery of the wheel.

Then, slowly, they come to the “discovery of America” (literally): the deficit/GDP in the U.S. is slightly more than double that of the Eurozone (in 2024, 6.5 percent vs. 2.9 percent) and promises to remain in the coming years around 6-7 percent, while in the Eurozone we are headed for a period of budget consolidation. So even less public investment, unless we want to think about cutting education, health care, and pensions.

An economy structurally set on wage moderation and cutting private consumption and public spending, based on the two sides of the same coin of savings and high exports, could only present a hefty bill. Recipes that in the 1920s required dictatorial regimes in Italy and Germany for their implementation plunged us into a very harsh crisis, with the tragic outcome of World War II. When the consensus failed because no one believed in it, then came the coercion of dictatorships.

And, after about a century, we are still there, with the Eurozone-U.S. divide that began to open at the beginning of the millennium. Epoch of which we do not remember particularly economically relevant events or, perhaps, we remember them too well.