GDP & Tech
Is Europe really sliding into a middle-tier economy? A widely-shared gap between the US and EU27 deserves some unpacking — once you adjust for exchange rates and price levels, the picture changes.
Since 2008, an $11 trillion nominal GDP gap emerged
Gross domestic product, current prices (US$), nominal. The EU27 went from roughly level with the US to trillions behind — but in nominal dollar terms.
The value creation gap: US public markets have pulled away
Combined market cap in $ trillions. The S&P 500 split shows the Mag 7 and the rest of the index; STOXX Europe 600 is shown on the same basis.
Source: Dealroom.co analysis based on the published Google Sheet (Indices, Main tab). STOXX Europe 600 is based on full market cap, not just free float.
Comparing EU27 and US economies: nominal, FX-adjusted, and PPP
The same two economies look very different depending on how you measure them. Currency swings and price levels drive most of the headline gap.
01Nominal GDP, current US$
The EU27 line is converted to US$ at a fluctuating exchange rate. Useful for comparing position on the global stage.
02Nominal GDP, constant '08 FX
Using a fixed 2008 exchange rate removes distortions from currency moves, but not price-level differences between countries.
03PPP-adjusted GDP
PPP accounts for cost-of-living differences and is useful for comparing real purchasing power. Healthcare is a big item, for instance.
Source: Dealroom.co analysis based on World Bank Open Data (GDP current US$, GDP PPP, and the Euro-area official exchange rate). EU27 is the World Bank "European Union" aggregate. The constant-'08-FX series re-prices EU27 output at the fixed 2008 EUR/USD rate, isolating real growth from the euro's depreciation. PPP figures use a common basket of goods to compare price levels across economies.
Nominal GDP and government debt, current rates
GDP (solid) versus general-government gross debt (dashed) in current US$. The shaded area is the gap between output and debt — for several large economies, debt has caught up with, or overtaken, annual GDP.
Source: Dealroom.co analysis based on the IMF World Economic Outlook
(NGDPD, GDP in current US$; GGXWDG_NGDP, general-government gross debt as % of GDP). Debt in US$ is derived as GDP × debt-to-GDP ÷ 100.
EU27 and Euro-area figures are the IMF's official aggregates. Toggle the region pills to rebuild the comparison.
Population trend since 2008 — total and working age
Indexed to 2008 = 100. Total population (solid) versus the working-age cohort, ages 15–64 (dashed). Europe's working-age population has been shrinking even as its headcount holds roughly flat.
Source: Dealroom.co analysis based on World Bank Open Data
(SP.POP.TOTL, total population; SP.POP.1564.TO, population ages 15–64). Each series is indexed to its 2008 level (=100); end-of-line labels show the average annual growth rate over the period.
Productivity — GDP per hour worked
Output produced per hour worked — the cleanest like-for-like comparison of how productively each economy turns labour into output. The default view is real (constant-price) output converted at PPP, anchored to 2015 cross-country levels and shown as a share of the US: on that basis the European productivity gap has widened since the mid-1990s — the EU from ~80% of US output per hour to ~67%, the euro area from roughly parity to ~78%. Use the switches to change the measure: Real strips out inflation (nominal leaves it in); PPP equalises price levels, while Market FX converts at exchange rates, so the comparison swings with the currency.
Source: Dealroom.co analysis based on the OECD Productivity database
(GDPHRS, GDP per hour worked; USD_PPP_H for PPP and XDC_H national currency for market FX; constant prices = real, current prices = nominal) and World Bank exchange rates (PA.NUS.FCRF; the pre-1999 euro is a synthetic rate from the Deutsche Mark). The default (real, PPP) is the standard productivity comparison, with real variants anchored to 2015 cross-country price levels; market-FX views swing with the currency. The OECD aggregate has no single currency, so it has no market-FX line. China and India are not in the OECD productivity database. Toggle the pills and switches to rebuild the comparison.
Within the US, it's a handful of metros
The productivity gap isn't only US-vs-Europe — it's a few tech hubs vs everywhere else. Real GDP per worker in San Francisco–Oakland is approaching $600K, roughly 4× the US average, with San Jose, Manhattan and Seattle also far ahead.
Source: Paul Krugman analysis of BLS and BEA data — real GDP per worker, selected US metropolitan areas. Static figures (this series isn't available from a live API).
Median household income — are Europeans poorer?
GDP per hour is what an economy produces; this is what reaches a typical household. Median equivalised disposable income is the household in the middle, after taxes and transfers — the standard “how rich is normal” measure. Show it as a share of the US median, as a US-dollar value, or as real growth since 2013; and convert currencies either at PPP (purchasing-power parity, which equalises price levels — the like-for-like welfare comparison) or at market exchange rates, which make lower-price economies look poorer. At PPP most of Western Europe sits at ~75–95% of the US median; at market rates the gap is much wider. Real growth strips inflation out: since 2013 the US median is up ~25% versus ~7–13% across much of Europe. One thing to watch: on the PPP view Europe appears to close the gap in 2022–23 — but that's a price-level effect, not a real surge. High US inflation lowered the dollar's domestic purchasing power (so PPP credits Europe with more), and the US median itself dipped in 2022; switch to Real growth or Market FX and the US-pulling-ahead picture returns. Which lens you pick is exactly the argument in the debate below.
Source: Dealroom.co analysis based on the OECD Income Distribution Database (median equivalised disposable household income, INC_DISP/MEDIAN, national currency), converted to US$ either at OECD Actual Individual Consumption PPP (PPP_P41, the standard welfare comparator) or at World Bank market exchange rates (PA.NUS.FCRF), with IMF CPI (PCPIPCH) as the real-growth deflator. PPP equalises price levels (the like-for-like comparison); market FX swings with the currency and makes lower-price economies look poorer. The level views start in 2013 (the first year the US median is published); the 2022–23 swings reflect PPP / relative-price moves (notably the 2022 US inflation spike) and provisional figures, so treat the latest two years as preliminary. France's OECD median begins in 2020, so it appears on the level views only (real growth needs the 2013 base). These standardised OECD medians don't reproduce every figure cited in the debate below — different sources use different income concepts and years — but they are the like-for-like comparison. Toggle the switches and pills to rebuild the chart.
US states are pulling away from Europe
Each dot is a US state, a European economy, or another advanced economy, plotted by how much real output per person grew over the selected period (horizontal) against its GDP per capita at the end year (vertical). Over the default 2008–2023 window, US states cluster high and to the right — richer and still growing faster — while most of Western Europe sits lower and to the left; Eastern Europe sits bottom-right (fast catch-up from a lower base). Pick any start and end year, and switch the vertical axis between PPP (purchasing-power parity, which adjusts for local price levels) and Market FX (market exchange rates): at market rates the US lead widens and lower-price economies like Poland and Greece drop sharply.
Source: Dealroom.co analysis. US states from the U.S. Bureau of Economic Analysis (real GDP, chained 2017 dollars, and population); countries from the IMF World Economic Outlook (GDP per capita at PPP, real GDP growth, population). Horizontal axis: cumulative real GDP-per-capita growth 2008–2023. Vertical axis: 2023 GDP per capita in constant-2017 PPP US dollars (countries: 2017 PPP level carried forward by real per-capita growth). Ireland & Luxembourg (multinational profit-shifting / tiny-base distortions), Singapore & Hong Kong (city-states) and Washington DC are excluded as outliers.
The rise of government — spending as % of GDP
General government total expenditure as a share of GDP, over the long run. Across the 20th century the state grew from under ~15% of GDP to ~40–55% in most advanced economies — through two world wars, the New Deal, and the post-war welfare state. France and Italy sit highest today; the US, Switzerland and Korea lower. EU27 and the euro area are GDP-weighted aggregates of their members. Toggle countries to compare.
Source: Dealroom.co analysis based on the IMF "Government expenditure, % of GDP" series (Public Finances in Modern History & World Economic Outlook). EU27 and the Euro area are GDP-weighted averages of member states (IMF NGDPD weights). Coverage varies by country and extends back to the early 20th century for several. Toggle the pills to rebuild the comparison.
Can Europe afford its model?
The competitiveness question, in one frame: Europe is a small share of the world's people and output, yet an outsized share of its welfare spending and a small share of its defence. The historian Stephen Kotkin's shorthand captures it.
“Europe has about 7% of the world's population, roughly 17–19% of global GDP, and nearly 50% of global social spending.”
| Metric | Europe | United States |
|---|---|---|
| Share of world population | ~6–7% | ~4–5% |
| Share of global GDP (nominal) | ~17–18% | ~25–26% |
| Share of global social / welfare spending | ~45–50% | ~18–20% |
| Share of global military spending | ~12–15% | ~37–40% |
Europe represents a shrinking share of global GDP but still aspires to maintain a distinctive social model, environmental leadership, and strategic independence. Draghi's warning is that these goals are not free. Without greater competitiveness, Europe may no longer have the economic strength required to sustain the values it wants to defend.
Approximate, widely-cited orders of magnitude (exact figures vary by source, year and how “Europe” is defined — here roughly the EU/EEA). Framing per Stephen Kotkin. Population & GDP shares: UN / IMF; military-spending shares: SIPRI; the social-spending share reflects Europe's outsized welfare states relative to the rest of the world.
The debate: the same numbers, three readings
The data above isn't really in dispute — what it means is. In 2026 a sharp public argument broke out over exactly these charts. Three camps, in short:
KrugmanNot in decline
The “productivity gap” mostly measures the volume of a tech sector the US happens to host, not how people actually live. At PPP, Europe has held ~90% of US output per hour for 25 years, and tech's gains diffuse worldwide as cheaper products. Europe : US :: Texas : California. The real risk is geopolitical, not GDP.
GaricanoStagnation is real
Tech genuinely makes America richer — it bids up local wages, earns fat margins (Apple ~40%, Anthropic ~70%) that stay as US profit, and concentrates in self-reinforcing clusters that push Europe out of the next frontier. The median American is materially ahead (+30% vs the Netherlands, +52% vs France), and the gap is widening.
Noah SmithPoorer — and it matters
America is clearly richer. Europe roughly kept pace on living standards but stagnated on productivity — itself a failure, since rich economies should converge. And the benchmark that matters isn't the US. It's China.
How this maps to the charts above: the Productivity “three lenses” chart is the measurement fight (PPP vs constant prices); the median-income chart is the “are Europeans poorer?” question; “a handful of metros” is Krugman's cluster argument; and “can Europe afford its model?” is the reform stake the Garicanos and Smith press. Below, the argument splits into the six places it actually turns.
The spark was a Wall Street Journal op-ed — “What Happens When Europeans Find Out How Poor They Are?” — and behind it Mario Draghi's 2024 competitiveness report, which warned that a “wide gap in GDP has opened up between the EU and the US, driven mainly by a more pronounced slowdown in productivity growth in Europe.”
Krugman pushed back: the decline narrative, he argued, is “American triumphalism” that doesn't survive contact with the right numbers. The Garicanos answered that he'd picked the metric designed not to see the gap. Noah Smith landed in between. Each figure below is attributed to the participant who cited it.
How do you even measure “falling behind”?
Has Europe's standard of living actually slipped against America since 2000 — or only its “real GDP” on one particular accounting convention?
To compare living standards at a point in time, use PPP at current prices — and Europe has barely moved.
Euro-area output per hour was ~90% of the US level in 2001 and ~90% in 2024; France was 74% of US GDP per capita in 2001 and 73% in 2024. The constant-price “divergence” is real arithmetic, but it measures the rising volume of tech output, not welfare.
For growth over time, constant prices are the right tool — and they show America genuinely pulling away.
Current-price comparisons go blind precisely where productivity surges and prices fall (software). Choosing the PPP snapshot that shows “no gap” is choosing the metric that cannot see the gap.
This is exactly the toggle on the Productivity chart above: Real (constant prices) shows the gap widening; the PPP snapshot Krugman prefers shows it roughly flat.
Is it “just tech” — and do the gains spill over to everyone?
US growth is concentrated in a tiny IT sector. Does that lead diffuse to Europe through cheaper technology — or does America keep most of the winnings?
IT is the engine, but competition passes its gains to consumers everywhere as lower prices.
IT is only ~8% of US value added yet nearly half of US productivity growth. Europeans buy the same iPhones at the same world prices, so the US lead shows up as faster measured growth, not a real divergence in living standards. California's tech-driven boom dwarfs Texas's — yet no one says Texans are left behind.
Three holes in the diffusion story — each makes America genuinely richer.
Non-tradables: housing, healthcare, services are priced in local labour markets; US tech bids those wages up, Europe gets no such lift. Margins: tech isn't sold at marginal cost (Apple ~40%, Anthropic ~70%), so gains stay as profit and equity, mostly US-owned. Agglomeration: clusters self-reinforce, pushing Europe out of the next frontier too.
Does US inequality mean the typical American isn't ahead?
America's average is inflated by the rich. Strip that out — is the median American household actually better off than the median European one?
High US inequality “arithmetically” pulls down what GDP/capita implies for most Americans — an important correction.
But he declines to put a number on it, “simply asserting” the effect is important but unquantified.
On median disposable income — after taxes and transfers, size- and PPP-adjusted — Americans are clearly ahead.
The US also redistributes more than the cliché suggests, off a higher base; and the fastest divergence is recent, so 2021 figures understate the gap if anything.
Dealroom's standardised comparison — the median-income chart above (OECD median equivalised income at consumption-PPP) — puts the US lead smaller: roughly +18% over the Netherlands and +30% over France in 2021, versus the +30%/+52% the Garicanos cite. The gap between the two numbers is Krugman's point: how far ahead the median American looks depends heavily on the method.
Is the gap just Europeans choosing leisure?
Americans work more. Adjust for hours and the gap nearly vanishes — so isn't lower European GDP a lifestyle choice, not a decline?
Productivity per hour is close; most of the GDP/capita gap is simply hours worked.
German output per hour is ~97% of the US level — the productivity gap explains only about a fifth of Germany's GDP gap. Europeans take their gains as August and shorter weeks. A different choice, not poverty.
For hours to explain the divergence since 2000, Americans would have to work more relative to Europeans now than then. The opposite happened.
A 2026 NBER paper finds about half the 1990s hours gap has reversed — Americans work fewer hours per person than in 2000, Europeans more — so post-2000 US growth can't be a “more hours” story.
France plainly doesn't look as poor as Mississippi
Walk around Paris and Alabama: surely the gut check tells you the GDP numbers are missing something?
Europe isn't poor the way Alabama is poor.
France's life expectancy is 4.7 years above the US (9 above Alabama); literacy is higher; tech access is comparable. Alabama is poor from low productivity; Europe is “poorer” mostly from fewer hours by choice.
Tourists self-select into Europe's prettiest old cores; American wealth hides in the suburbs.
Drive the edge of any US city — huge new homes, downtown towers in Austin and Nashville. And it's generational: housing often costs more in Europe, and the nice cores are out of reach for the young. “Europe is great for people with American incomes.”
So what should Europe worry about?
Here the three converge more than they admit — they just disagree about which threat is largest.
The real danger is being cut off from strategically vital technology while the US turns unreliable and China rises. Europe is one of three economic superpowers, and the only democratic one. Its problem is political timidity, not poverty.
The US is clearly richer; Europe roughly kept pace on living standards but stagnated on productivity — itself a failure, since rich economies should converge. The benchmark that matters isn't America. It's China. “Europe can no longer afford to be the shabby, comfortable aristocrat of the world economy.”
The divergence is the single strongest argument for reform. Explain it away and you hand the opponents of change their alibi — that Europe is already at the frontier. “Something America is doing is working,” and Europe needs to find out what.
Sources: Paul Krugman, “Is Europe in Economic Decline?”, “Challenging the Narrative of European Decline, Continued” and “Modeling the US–Europe Paradox” (Substack, 2026); Pieter & Luis Garicano, “European stagnation is real” (Silicon Continent, 2026); Noah Smith, “Yes, Europeans are poorer than Americans” (Noahpinion, 2026). Supporting: Mario Draghi, “The future of European competitiveness” (European Commission, 2024); ECB on euro-area vs US labour productivity (2024); Birinci, Karabarbounis & See, “Why Do Americans No Longer Work So Much More?” (NBER, 2026). Each figure is attributed to the participant who cited it — these are the debaters' positions, not Dealroom analysis; where a claim can be checked against the live charts above (measurement, median income, productivity), the comparison is noted in place.
How this is built
- Every chart is pulled live from a public API (no manual updates — each refreshes as the source revises): GDP gap via
/api/worldbank-gdp, value creation gap via/api/value-creation-gap, GDP vs debt via/api/imf-gdp-debt, population via/api/worldbank-population, productivity via/api/oecd-productivity, median income via/api/oecd-disposable-income, share of world GDP via/api/worldbank-gdp-share. - Nominal & PPP GDP:
NY.GDP.MKTP.CDandNY.GDP.MKTP.PP.CD; Euro-area FX:PA.NUS.FCRF. - Value creation gap: published Google Sheet "Indices", Main tab — S&P 500, S&P 500 excluding Mag 7, Mag 7, and STOXX Europe 600 combined market-cap series.
- Constant-'08-FX EU27 = nominal US$ × fx(year) ÷ fx(2008) — the same real series, held at one exchange rate.
- GDP vs debt: IMF WEO
NGDPDandGGXWDG_NGDP; debt US$ = GDP × debt-to-GDP ÷ 100. Population: World BankSP.POP.TOTLandSP.POP.1564.TO, indexed to 2008 = 100. - Productivity: OECD Productivity database
GDPHRS(GDP per hour worked) inUSD_PPP_H— constant prices (chain-linked volume,TRANSFORMATION=Nlevels), US$ at PPP — the real-volume series, so trends reflect productivity growth rather than inflation or PPP revaluation.
Where does the growth actually come from?
The full Dealroom platform tracks the companies, investment and innovation behind the numbers — across every European ecosystem.