Europe’s tech stagnation: economic crisis in the making? | The Express Tribune

Over the past few decades, the US and China have outpaced the European economy, leaving it struggling to keep up. This economic downturn has fueled political instability in several European countries, with the rise of populist far-right leaders. Europe’s decline in the global economic race is partly a result of outdated economic policies. The current political turmoil in France and Germany has further exacerbated Europe’s financial challenges. The US-China trade war, security tensions in the Middle East and the ongoing Ukraine conflict have all placed additional strain on the European economy. Furthermore, with Donald Trump in the coming days in the Oval Office, the looming threat of a 10% tariff on European goods could worsen the situation. To foster economic growth, productivity is key, as it allows for greater value creation with the same amount of work. However, unlike the US and China, Europe’s failure to prioritise high-tech industries has left it at a significant disadvantage.

The European economy is currently trapped in stagnation, and if the current economic trajectory continues, Europe could account for less than a tenth of the global economy by 2050, diminishing its role on the world stage. The European economy is already 18% smaller than it could have been, resulting in a shortfall of trillions of euros. One major factor contributing to this decline is Europe’s lack of cutting-edge technologies and the absence of successful high-tech companies. In contrast, major US tech companies – Apple, Amazon, Meta, Microsoft and Nvidia – have a combined market value of nearly $8 trillion, which would make them the third-largest economy in the world.

Europe is falling behind due to its lack of advanced tech platforms across key industry sectors, and this is particularly impacting its car manufacturing industry. Both the US and China are making substantial investments in electric vehicles and automated cars, which are key products of the digital era. Volkswagen, one of Europe’s largest car manufacturers, is struggling to survive because it was unprepared for the electric vehicle revolution.

France, the second-largest economy in Europe, is also facing a stalemate in both political and economic spheres. It is struggling to manage its growing debt while dealing with a widening deficit, caused by the gap between government spending and tax revenues.

Europe is on the brink of a potential debt and employment crisis, which is exacerbating the fiscal challenges across the continent. These issues will persist until the political situations in Germany and France stabilise, as both economies play a crucial role in the EU’s overall performance, and many members state heavily rely on trade with them. The EU needs both France and Germany to thrive if it hopes to secure a prosperous future. As economist Mario Draghi pointed out in a report on EU competitiveness, “The European economy is facing an existential challenge.”

The Ukraine war has forced the EU to increase its defence spending. It is projected that defence expenditure will reach €326 billion, or 1.9% of the EU’s GDP, just below the 2% target set by NATO for its members. This marks the highest defence spending level in Europe since WWII.

The declining euro-dollar parity is another worrying indicator of Europe’s economic challenge. In a geopolitical context, a strong dollar-based economy is crucial, and the falling parity raises concerns among politicians and economists. This shift has also provided a platform for populist right-wing politicians in Europe to push for movements similar to Brexit, further destabilising the political landscape.

Europe’s lag in technology, particularly in comparison with the US and China, is a significant factor driving its economic challenge. The technological gap has led to reduced competitiveness, slower innovation and a reliance on external markets, contributing to stagnation and decline in various sectors of the economy, which can manifest in rising populism, internal divisions and a weakening of Europe’s global influence.