The Two Europes
Eastern European countries like Poland, Romania, and Lithuania have significantly converged toward US per capita GDP levels since the 2000s, driven by EU integration and institutional reforms. In contrast, Western and Southern European nations including France, Italy, Spain, and Portugal have declined relative to the US, lagging in productivity and innovation. This divergence reveals two distinct Europes: one catching up and reforming, the other struggling to adapt despite shared economic and security challenges.
- ▪Poland is projected to reach 67% of US per capita GDP by 2030, up from 34% at the start of the millennium.
- ▪France's GDP relative to the US fell from 86% to 71%, and Italy's dropped from 93% to 68%, reflecting stagnation in richer EU countries.
- ▪The Russian invasion of Ukraine has spurred reform in Eastern Europe but has not catalyzed significant change in the economically stagnant Western and Southern EU nations.
- ▪Mancur Olson's theory explains that stable societies accumulate interest groups that resist reform due to concentrated losses from change.
- ▪The Draghi report highlighted necessary reforms for innovation, energy, defense, and firm productivity, but implementation remains blocked by entrenched distributional coalitions.
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The two EuropesEurope’s security shock is deepening its economic divideLuis GaricanoMay 07, 2026117824Share(I coauthored this post with Olivier Kooi who is a postdoc at the LSE.)While we have spent a decade complaining about Europe’s stagnation, a real positive convergence story has been unfolding at the eastern edge of the continent. Poland entered the millennium at 34% of US per capita GDP; by 2030, the IMF projects it will reach 67%. Romania rises from 27% to 60%. Lithuania moves from 29% to 69%. Bulgaria goes from 23% to 53%. These countries’ citizens are still significantly poorer than Americans. But they have closed a large part of the gap with the global frontier.
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