{"id":83924,"date":"2025-07-22T19:04:19","date_gmt":"2025-07-22T19:04:19","guid":{"rendered":"https:\/\/www.europesays.com\/us\/83924\/"},"modified":"2025-07-22T19:04:19","modified_gmt":"2025-07-22T19:04:19","slug":"why-european-economies-are-failing","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/83924\/","title":{"rendered":"Why European economies are failing"},"content":{"rendered":"

There are two dominant global economic powers: the United States and\u00a0China<\/a>. In contrast, the countries of the\u00a0European Union<\/a>\u00a0and the\u00a0United Kingdom<\/a> are struggling. Over the past two decades, the U.S. has maintained its\u00a0leading\u00a0position<\/a>\u00a0in the world economy, at around 26% of global GDP. China continues to grow its share of the world\u2019s economic pie.\u00a0By contrast, Europe has lost\u00a0significant\u00a0market share<\/a>. Bluntly, Europe is no longer a credible major power.<\/p>\n

That matters in part because in the next few weeks, the U.S. is set to raise tariffs on the exports of EU countries into the U.S. The U.K. has already reached a\u00a0trade agreement<\/a>\u00a0with the Trump\u00a0administration. The EU\u2019s problem here is that it is fractured politically and does not have the power to negotiate from a position of strength.<\/p>\n

That begs the question: What happened to cause Europe to become globally impotent?<\/p>\n

The reasons are many, but a few stand out. Government and\u00a0bureaucracy<\/a>\u00a0are too large and powerful\u00a0in Europe. The private sector has been largely neutered by European governments. Taxes are\u00a0too high<\/a>\u00a0in Europe. Business and workers respond\u00a0positively<\/a>\u00a0to incentives.\u00a0They also respond negatively to disincentives. In the U.S., taxes take about 27% of GDP. In Europe, taxes\u00a0confiscate<\/a>\u00a0more than 40%\u00a0of GDP. And in some European countries, the tax burden on the private sector exceeds 50%.\u00a0After a certain point, the larger the tax burden, the smaller the economy. It is not a coincidence that the people of France, the U.K., and Spain are\u00a0poorer<\/a>\u00a0than the residents of Mississippi, the poorest state in the U.S.. In each of these countries, the government takes well\u00a0over 40%<\/a>\u00a0of the production that the private sector generates.<\/p>\n

Another structural impediment for economic growth in Europe is\u00a0demographics<\/a>.\u00a0Europe is aging rapidly. Population growth is slowing below the rate of replacement. In many countries of Europe, population is declining. Fewer workers are supporting more retirees. The tax burden on workers keeps rising because too few politicians have the courage to recognize wholesale entitlement reform is needed if future\u00a0economic prospects are to be bolstered. Again, labor responds positively to the\u00a0incentives<\/a>\u00a0of lower taxes. By contrast, workers react poorly to higher taxes, especially when marginal tax rates are above 50%. Research by\u00a0Nobel laureate James Mirrlees<\/a> demonstrates that efficient tax policy requires lower marginal tax rates on the most productive. Society needs more of what the most productive do.<\/p>\n

Excessive\u00a0regulation<\/a>\u00a0is the third major explanation for why Europe is rapidly sliding into economic irrelevance on the global stage.\u00a0The bureaucracy of Europe suffocates entrepreneurism. Advanced technology is the high ground of economic growth. The U.S. and China are vying for technological superiority. Both countries are allocating hundreds of billions of dollars each year toward investment in technology, especially the technology surrounding artificial intelligence and quantum computing. Both the U.S. and China have many technology companies that are\u00a0global leaders<\/a>. Arguably,\u00a0there are only two cutting-edge technology champions in Europe,\u00a0Arm Holdings<\/a>\u00a0of the U.K. and\u00a0ASML Holdings<\/a>\u00a0of the Netherlands. ARM designs semiconductors. ASML manufactures the world\u2019s most technologically sophisticated lithography machines, which are necessary for the fabrication of the most advanced chips.<\/p>\n

A major policy blunder of the EU was the 2018\u00a0Global Data Protection Regulation<\/a>.\u00a0The capital costs to comply with this law are significant. America\u2019s technology giants have the scale to spread the cost of compliance across hundreds of billions of revenues. There are no advanced technology companies in Europe with the scale to efficiently absorb the costs of the GDPR legislation. This act\u00a0froze<\/a>\u00a0investment in high technology in Europe.<\/p>\n

Europe does not\u00a0invest<\/a>\u00a0sufficient funds in research and development. Moreover, each European country allocates R&D spending according to its national economic and political interests and needs. No individual European country can\u00a0match<\/a>\u00a0the capital investment for AI and advanced technology that the technology giants of the U.S. make year after year. Size and scale matter.<\/p>\n

One anecdote is telling. The cost of\u00a0cellular services<\/a>\u00a0is lower in Europe than in the U.S. The U.S. has three major cellular carriers. Europe has over 40. But European\u00a0cellular companies<\/a> do not have sufficient\u00a0funds to invest in the most advanced cellular technologies. Prices are not the only factor in determining economic performance.<\/p>\n

For another window into Europe\u2019s economic malaise, we should turn to the continent\u2019s largest economy.<\/p>\n

Until recently, Germany was the economic engine of the European economy. Now it has stalled.\u00a0GDP growth<\/a>\u00a0in Germany has been flat\u00a0for five years. It is losing its status as an industrial powerhouse. Its export-dependent economic model is falling in the face of the second\u00a0Chinese\u00a0manufacturing<\/a>\u00a0revolution. China must export, or its economy will atrophy. China is taking global market share from Germany. China, at this moment, is\u00a0destroying<\/a>\u00a0the vaunted German car industry. Trump\u2019s tariffs are also undermining the foundations of the German manufacturing sector.<\/p>\n

It gets worse for Berlin.<\/p>\n

Germany\u2019s labor costs are too high. Germany\u2019s pivot to green energy was a major policy mistake. Green energy is not competitive with 24\/7 fossil fuels or nuclear power. Germany\u2019s industrial giants are\u00a0reallocating<\/a>\u00a0capital to the U.S. and other geographies. With the decline of Germany, Europe no longer has a powerful economic engine.<\/p>\n

There are two other important factors in the economic decline of Europe. First, as a general matter, the countries of Europe do not embrace capitalism and\u00a0creative destruction<\/a>. Europe does not trust the\u00a0profit motive<\/a>. The countries resist new technologies and productivity advances that cause unemployment in certain sectors of the economy. It is difficult to let labor go in Europe. Innovation is difficult. Productivity growth\u00a0slows<\/a>.\u00a0The few benefit,\u00a0but the many lose out because economic growth stalls. It is a fact that a rising economic tide lifts all households. A falling economic tide, which is the case in Europe, harms everyone.<\/p>\n

MEASURING WHAT AMERICANS THINK ABOUT ILLEGAL IMMIGRATION<\/a><\/strong><\/strong><\/p>\n

Furthermore, too many Europeans just don\u2019t want to work. Germany is the\u00a0sick leave<\/a>\u00a0champion of Europe. In the U.K., the number of people on unemployment relief because of alleged disabilities is soaring.\u00a0Disability benefits are a major cause of the British fiscal deficit. In Spain, the overall\u00a0unemployment<\/a>\u00a0rate exceeds 10%.\u00a0The number of people working is a critical factor in overall economic growth. Now, France is trying to reduce its fiscal deficit by eliminating two national holidays. Powerful French labor unions are pushing back.\u00a0Hours worked<\/a>\u00a0in Europe are dwarfed by\u00a0labor output<\/a>\u00a0in the U.S.. Free riders are making Europe poor.<\/p>\n

Remember all this next time you hear an academic or media personality telling you that Europe remains the promised land.<\/p>\n

James Rogan is a former U.S. foreign service officer who has worked in finance and law for 30 years. He writes\u00a0a daily note<\/a>\u00a0on the markets, politics, and society.\u00a0He can be followed on\u00a0X\u00a0here<\/a>\u00a0and reached at\u00a0[email\u00a0protected]<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"There are two dominant global economic powers: the United States and\u00a0China. In contrast, the countries of the\u00a0European Union\u00a0and…\n","protected":false},"author":3,"featured_media":83925,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[64,16968,79,440,8697,26553,56923,31700,30520,10452,67,132,68],"class_list":{"0":"post-83924","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-capitalism","10":"tag-economy","11":"tag-europe","12":"tag-european-union","13":"tag-in-focus","14":"tag-patriotism-unity","15":"tag-regulations","16":"tag-restoring-america","17":"tag-socialism","18":"tag-united-states","19":"tag-unitedstates","20":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/114898446737556319","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/83924","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=83924"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/83924\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/83925"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=83924"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=83924"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=83924"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}