Last September, former European Central Bank president and Italian prime minister Mario Draghi described Europe’s economic prospects as a “slow agony” of decline. Draghi was presenting his report on how the European Union could catch up to the United States in terms of GDP growth, closing a gap that emerged in the ’90s, widened after 2008, and expanded further following the COVID-19 pandemic. Economists believe Europe’s stagnant productivity is to blame for this divergence, which has left the EU’s nominal GDP per capita at about half that of the United States.

In 1990, Europeans and Americans both produced about $53 in output for every hour they worked. By 2023, US labor productivity had risen to $87 an hour, while Europe’s sat at $76. This split is a relatively new phenomenon. After the devastation of the world wars, Europe seized the opportunity to modernize its industries, and it experienced more productivity growth than the United States from the 1950s to the 1970s. The gains slowed when the oil shocks of the 1970s rattled the global economy, but Europe continued to catch up, reaching its best position compared to the United States in 1990. Since then, however, Europe has gradually fallen behind.

Europe’s post-pandemic slump has been dramatic. Productivity increased by 6% in the United States and just 0.6% in the euro area between 2019 and 2023; in 2024, the EU economy grew less than 1%. The larger American fiscal stimulus and the Ukraine war’s energy shocks have no doubt exacerbated this short-term collapse. But most policymakers agree that the United States’ dynamic tech sector  —  and Europe’s relative lack of one  —  is the main reason US productivity growth has outpaced the EU’s for decades. “Europe largely missed out on the digital revolution,” Draghi writes in his report. As a result, no European companies founded in the past fifty years have achieved a €100 billion market capitalization, whereas the United States has produced six companies worth more than €1 trillion in the same period. Europe’s lower levels of business investment and quickly aging workforce have compounded the problem, as has the rise of China.