If relatively recently, in 2008, the economies of the Eurozone and the USA demonstrated parity in terms of GDP, now the USA is ahead of the EU by a third. Among the ten largest by market value companies of the world, nine are owned by the United States, while no European company made it to the list. The first company from Europe, the Danish Novo Nordisk, took only 23rd place in the rating.
Mississippi, the poorest state in the US, has almost tied Germany for GDP per capita, already ahead of Great Britain, France and Italy. In general, the level of economic well-being in the United States exceeds the indicators of all European countries, with the exception of Luxembourg and Ireland. If earlier the European Union was perceived as a possible rival of the USA on the world stage, this is not the case at all.
In order to better understand the prerequisites for the development of the Old and New Worlds, it is worth remembering what helped create the current economic situation. It is necessary to understand the difference in the economic development of the US and the EU after the 2008 crisis, focusing on structural features, approaches to crisis management, demographic challenges and the role of technology.
Impact of the 2008 crisis, US economic stimulus policy and structural problems of the EU
It is a well-known fact that the 2008 financial crisis began in the USA due to the collapse of the mortgage securities market. This caused a global economic recession. In the US, GDP fell, unemployment rose, and banks suffered heavy losses. Some countries in the Eurozone – Greece, Italy, Spain and Portugal – have also suffered greatly due to large debts.
The US Federal Reserve then cut the key rate to near zero and launched asset purchase programs to stimulate the economy during the crisis. This helped reduce borrowing costs, stimulate investment and increase employment. For its part, the government introduced a significant financial stimulus, investing in infrastructure, small business support and social programs. This helped Uncle Sam to recover quickly, and from the mid-2010s to resume stable GDP growth.
At the same time, in Europe, the 2008 crisis exacerbated already existing problems, which led to a debt crisis. Thus, Greece had difficulties with debt servicing and turned to the IMF, the European Central Bank and the European Commission for help. This launched a number of aid programs for other countries.
Under the leadership of Mario Draghi, the European Central Bank introduced a policy of low interest rates and bond purchases, declaring its readiness to do everything possible to preserve the euro. At the same time, structural reforms were carried out in countries with high debt, which were often accompanied by social protests due to severe austerity measures.
Thanks to a flexible fiscal policy and less dependence on foreign debt, the US economy recovered more quickly. In the EU, the recovery was uneven: while the northern countries of Germany and the Netherlands showed stable growth, the southern ones – Greece and Italy – had high unemployment and very moderate growth.
These crises led to political shifts. In the United States, anti-crisis measures have raised the issue of inequality and caused political polarization. In the EU, due to dissatisfaction with economic measures and migration problems, support for populist parties has increased. The EU stagnated due to the lack of full fiscal integration, the different level of development of the countries and the decrease in population. To stabilize the situation, the European Stabilization Mechanism and attempts to reform the Eurozone were created.
After the crises of 2008-2012, the economies of the Old and New World began to grow steadily, which lasted until 2020. However, the COVID-19 pandemic has triggered a new global recession, forcing the US and the EU to launch new economic stimulus programs. In the EU, a program was introduced “NextGenerationEU”, which included large-scale financing based on joint debts.
The role of demographic decline, lack of innovation, bureaucracy, differences between countries and the limitations of the Eurozone
An obstacle to economic growth in the EU is a decrease in the number of the working population due to low birth rates and an aging population. Fewer young workers means less productivity, less taxes, and more spending to support the elderly. This problem is particularly acute in Southern and Eastern Europe, where many young people migrate to more developed countries.
In addition to demographic problems, the EU faces challenges in the area of innovation. Despite its strong scientific traditions, the region lags behind the US and China in the commercialization of innovations and the development of high technologies. An obstacle to progress is the lack of a single digital market and limited funding for start-ups, which slows down the introduction of the latest technologies and reduces the global competitiveness of the European economy.
Bureaucracy and complex administrative procedures remain additional barriers for business and investment attraction. Regulation complicates the activities of small and medium-sized businesses, on which the economic stability of states traditionally depends. These problems are further aggravated by the inefficient distribution of funds from pan-European funds, limiting the development of less well-off regions.
Inequality between EU members creates additional challenges. Economically stable countries, such as Germany and the Netherlands, have high levels of competitiveness, while southern European states such as Greece and Italy face high debt and low productivity. This disparity makes it difficult to coordinate a common economic policy, since the interests of individual countries often do not coincide.
Despite the single currency, the Eurozone remains without a common tax and budget policy, which leads to economic imbalances. Countries with low competitiveness cannot use the devaluation of the national currency to stimulate exports, as countries outside the Eurozone do. In crisis situations, this forces them to turn to more developed countries for help, which sometimes provokes political disputes and exacerbates internal tensions in the EU.
The role of the technological sector
The USA dominates the technology sector because it has unique conditions for the development of large companies such as Apple, Amazon or Google. In the States, there is strong support from universities and scientists, investors are willing to actively invest in new ideas, and companies can easily operate in the entire market of the country due to the absence of barriers between states. In addition, risk is valued in the US: startups are created quickly, regardless of their success.
It is more difficult to create such technological giants in Europe. The market is fragmented – each country has its own laws, taxes and even language. European investors are more cautious and it is more difficult for companies to get big money for development. Europe also has strong universities, but they rarely turn their scientific achievements into profitable businesses.
Strict laws like GDPR make it difficult for companies to work, as they require additional costs and resources to meet high data protection standards. This is especially difficult for startups and small businesses, which often slow down new product launches because of these requirements. Many European countries are focused on traditional industries such as mechanical engineering, which receive more investment. This slows down the development of new technologies and innovations compared to regions where approaches are more flexible.
As a result, the US sets trends in technology and controls important digital platforms on which the entire world, including Europe, depends. To turn things around, the EU needs to simplify business rules, invest more in technology and create a digital single market for the entire eurozone.
Economic policy of the New and Old World
The United States and the European Union have different approaches to regulatory policies, tax incentives, business support, and research investments that affect their economies and technological development. These differences create competitive advantages and challenges for both regions.
Yes, the American regulatory system is flexible and aimed at stimulating innovation. With minimal restrictions on data protection, competition, and new product launches, American startups have a better chance of rapid, successful growth. For example, technology companies actively use such a tax incentive as a reduced corporate tax, which was reduced from 35% to 21% after the 2017 reform.
Instead, in Europe, regulatory policy is more focused on consumer protection and compliance with eco-standards. The implementation of the GDP Regulation increases the level of data privacy and sets global standards, but at the same time increases the costs of business compliance. This, in turn, slows down the launch of new technologies and creates difficulties for startups. There are also tax incentives in the EU, but they vary considerably between member states. Although Germany and France have programs to support innovation, the overall tax burden in the region is higher than in the United States, making it difficult for European businesses to compete.
The US actively supports startups through venture capital, government grants and special programs. Yes, Small Business Innovation Research finances startups developing innovative products and technologies. The program provides resources for research, testing and turning ideas into commercially successful solutions.
Government collaboration with the private sector facilitates the commercialization of technologies developed in public laboratories and accelerates their entry into the market. The European Union supports research and innovation through funding programs such as Horizon Europe. This EU framework program for research and innovation for 2021-2027 has a budget of more than €95.5 billion. Ukraine participates in the program as an associated country, which allows the use of European funding instruments, joint research with EU countries and access to their research infrastructure. However, complex procedures and limited access to resources often hinder the development of small and medium-sized businesses.
It is also worth comparing European and American investment in research. The US has a long history of funding technological developments through the defense budget, which has allowed GPS and the Internet to be created, among other things. Much of the money goes to university research that collaborates with private companies. At the same time, funding in the EU is more focused on fundamental research, but its volume is smaller than in the USA. In addition, funds are distributed among member countries, which often reduces the effectiveness of this financing.
It can be summarized that the USA leads due to its flexibility, quick adaptation to changes and favorable business environment. At the same time, Europe, despite its achievements in consumer protection and environmental sustainability, faces challenges due to strict regulations and complex procedures. To remain competitive, the Old World needs to reform regulatory and tax policies, simplify access to funding, and strengthen ties between research institutions and business. This will help the region to become more dynamic and technologically advanced.
…For a more complete analysis of the background of American leadership in terms of GDP, which is often associated with living standards, and the reasons for Europe’s lagging behind, next time we will look at the issues of living standards, social guarantees and inequality in the New and Old Worlds. Let’s understand the economic inequalities between more and less developed countries of the Eurozone and how this affects their competitiveness. We will also consider the impact on these regions of geopolitical events, changes in global trade and the transition to a “green” economy. Separately, we will discuss the EU’s opportunities to restore competitiveness through investments in technology, reducing bureaucracy, and creating new economic unions.
Tetyana Viktorova
