Wealthy Americans are again expected to flock to Europe in droves this summer, where they are expected to splash out on pricey hotels at the Paris Olympics or in the Mediterranean, vie for Taylor Swift concert tickets and dispense generous restaurant tips. The tourism industry — which contributes 10 percent of EU GDP — would be delighted to welcome these big spenders. However, the locals increasingly look like poor relations, at least in purely financial terms.
While money is not everything, Europe would benefit from some soul-searching: Its high living standards are rightly treasured and help explain why it attracts more than half of the world’s international tourists. However, these hard-won achievements are at risk unless politicians do more to boost productivity and maintain prosperity.
For decades, Europeans have drawn solace from the fact that while absolute wealth levels are higher in the US, Europeans fare better when it comes to other elements of the good life. They enjoy longer paid vacations, less gun crime, healthier diets and walkable cities — factors that in turn contribute to greater longevity. Average lifespans in the EU are estimated at 81.5 years, compared with about 77.5 years in the US.
Lately, Europe has begun to worry about a yawning trans-Atlantic divergence in economic growth and technological competitiveness. “Americans just work harder,” whereas Europeans are less ambitious and more risk averse, Nicolai Tangen, the head of Norway’s US$1.6 trillion sovereign wealth fund, told the Financial Times in April. Prior to stepping down as chief executive officer of Dutch chip manufacturing equipment giant ASML Holding NV, Peter Wennink warned last year that Europe is falling behind and must overcome complacency.
“Looking at our society, I sometimes get the impression that we are, as they say, ‘fat, dumb and happy,’” he said.
With Europe’s working-age population set to shrink due to unfavorable demographics, these deficiencies would make it harder to sustain generous welfare systems and public pensions, and to restore the continent’s defense capability in the wake of Russia’s invasion of Ukraine.
Voters who feel economically left behind might be more easily wooed by the far right and blame migrants for their woes. Germany is considering ways to incentivize longer working hours, while the British Labour Party has put economic growth and wealth creation at the heart of its election campaign.
However, keeping up with the US economic juggernaut is not easy: UK corporate boards are under pressure to increase chief executive officer pay to match US levels to avoid losing talent and to shift their stock listings to New York where they might get a better valuation. Meanwhile, Le Monde’s New York correspondent lamented in April that the US has become “unaffordable” for Europeans.
It is certainly not all gloom and doom on this side of the Atlantic: Eurozone unemployment is at a record low, for example. And the US is far from perfect: Much of the transatlantic gap in GDP levels is explained by currency fluctuations, faster population growth and Washington’s fiscal largess (which might not be sustainable). US employees need big salaries to afford shockingly expensive child care, university tuition and health care, and higher average US wealth levels should not blind one to the fact that this wealth is very unevenly distributed; US median wealth levels tell a very different story.
Nevertheless, on several metrics, Americans are doing better financially. Adjusted for the cost of living, US GDP per capita is about 28 percent higher compared with the euro area, data compiled by the World Bank said show.
Average annual wages are also superior in the US, and labor taxes are comparatively low, data compiled by the Organisation for Economic Co-operation and Development showed.
Remarkably, more than one-third of US households now earn more than US$100,000 a year, US Census Bureau data showed; there are about 23 million US millionaires, compared with fewer than 3 million each in the UK, France and Germany, UBS Group AG’s global wealth rankings last year showed.
This prosperity gap is partly a result of how Americans invest their spare cash: Thanks to tax-advantaged accounts like 401(k)s, they are far more likely to buy stocks, while Europeans hoard trillions of euros in low-yielding bank deposits.
Americans’ greater risk tolerance has paid off. It might seem preposterous now, but in 2008 the market capitalization of the STOXX Europe 600 was about the same as the S&P 500 in US dollar terms; today the gulf is massive. For example, artificial intelligence (AI) chip maker Nvidia Corp is worth more than the entire French stock market.
A dearth of home-grown European tech champions makes many Europeans worried that the trans-Atlantic wealth gap could widen further.
About 70 percent of foundational AI models are being developed in the US, while just three US companies account for 65 percent of the global cloud computing market, former Italian prime minister and European Central Bank president Mario Draghi said in a speech last week.
Draghi is due to publish a much-anticipated report on Europe’s lagging competitiveness next month: Besides Europe’s comparatively high energy costs and fragmented single market, the main problem is weak productivity growth, he said.
A recent report from the European Centre for International Political Economy (ECIPE) reached a similar conclusion: “Europe’s economic challenge is not about working longer hours or taking shorter holidays but improving the amount of value-added generated by the inputs to the economy.”
One obvious area to focus on is research and development (R&D) spending: Between 2014 and 2021, US R&D expenditures increased at twice the rate of those of the EU, the ECIPE report said.
Mobilizing more joint EU borrowing to help fund such investment could be difficult if Marine Le Pen’s Euroskeptic National Rally party forms France’s next government. That is all the more reason to tap private capital, including by nudging Europeans to invest more of their savings in the stock market and thereby support domestic companies.
No one should begrudge Americans their hard-earned trips to Europe — it might be the only paid holidays they get all year. In contrast, Europeans need to step up their game if they want to keep enjoying the good life.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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