Krugman: Europe not in decline, but exposed in a geoeconomic world

Key points

Key takeaways from Euro Matters, the podcast of the European Central Bank, in conversation with Nobel laureate Paul Krugman (October 2026):

The decline story does not fit the data. Krugman argues the "museum to its past glories" narrative fails on the ground: general prosperity and technological sophistication look near-indistinguishable from the United States, and Europe's lower GDP per capita largely reflects Europeans taking more holiday time.

European manufacturing outguns the US. Europe's manufacturing is slightly bigger by value added and its healthcare comparable in quality but far more universal; the gap is confined to developing the "currently sexy technologies".

The real miss is developing, not using, technology. US and Chinese companies dominate the cutting edge of IT, and Europe has little presence developing it — though on actual use, Krugman sees no obvious European lag.

Even America has only a few tech clusters. Comparing California with the rest of the US shows the same gap as the US–Europe comparison: Ohio, Georgia or Texas have no Silicon Valley either, and US leadership is effectively a handful of metropolitan areas.

Europe lacks venture capital and labour mobility. There is no European equivalent of Sand Hill Road, and workers move far less freely between European regions than within the US; in a more fragmented, conflicted world Europe would benefit from building both.

The single market is still unfinished. The 1992 promise of one continental market remains unfulfilled — capital does not flow across Europe as it does across US states, and fragmentation (amazon.nl versus amazon.it, no amazon.eu) still shapes daily life.

The return of geoeconomics. The 75-year "fool's paradise" of a flat, power-blind world economy is over: the EU is the world's largest exporter even excluding intra-EU trade, China has the greatest ability to make difficulties for others, and Krugman reads the US as more exposed to China than the EU is.

Brussels needs trade-defence tools. Krugman argues Europe should build equivalents of the US Section 201/301/232 statutes so Brussels can respond to import surges or economic coercion, pursue an industrial policy for precautionary capacity (a European Chips Act), and complete the internal market — and he remains fundamentally optimistic about Europe's educated, flexible societies.

Read more: Euro Matters — European Central Bank