Mario Draghi's European Productivity Gap Is a Math Error

Key Takeaways

• Mario Draghi's 2024 competitiveness report claims European labor productivity dropped from over 90% of United States levels in 1995 down to 70% or 85%.
• Corporate executives repeat this gap as fact; Jamie Dimon warned European audiences that European GDP dropped from 90% of US output a decade ago to 70%.
• Economist Dominik Leusder shows this decline is a statistical illusion caused by fixing exchange rates to 2010 purchasing power parity dollars and extrapolating forward.
• Comparing purchasing power parity at current prices reveals European productivity per hour tracks United States output closely.

The Flawed Anchor Behind the Draghi Report

Every few months, an American executive lands in Brussels or London and tells local founders that Europe is dying. Jamie Dimon did it recently. As Dominik Leusder points out, “Jamie Dimon has been making these remarks frequently, saying he came to Europe last year and in a couple of events this year as well, said, 'You're losing because European GDP was 90% of US 10-15 years ago, now it's 70%, and this is not good.'”▶ 9:08

That talking point found official backing in Mario Draghi's 2024 report on European competitiveness. Draghi built his argument around a single chart showing European GDP per hour tumbling from over 90% of American levels in 1995 to somewhere between 70% and 85% today. The takeaway was simple: without immediate reform, Europe faces permanent stagnation.

Leusder questions the underlying data: “And I think that the centerpiece of the report is this notion that the productivity ratio, so GDP per hour in PPP terms, has gone from 90-something percent to 70% or 85%, depending on how you measure it, since 1995, when really the tech boom in the US begins.”▶ 11:14

The chart looks terrifying. The problem is that the math behind it is wrong.

The Mechanics of Constant Price Distortions

Draghi reached his grim conclusion through a standard macroeconomic shortcut. He fixed prices in 2010 purchasing power parity (PPP) dollars, then projected those numbers forward using national accounts growth rates.

“The problem is with the Draghi measure, which is a frighteningly common measure, but I think it's as well documented to be the wrong measure,”▶ 17:36 Leusder explains. “And it does so by fixing prices at a given year. So basically it's measured in the Draghi report in 2010 dollars.”▶ 17:45

When an economist freezes prices in 2010 dollars and compounds local growth rates over fifteen years, small measurement differences blow up into massive fictional gaps. The United States and Europe measure inflation, quality improvements, and tech spending differently. Over years of compounding, those differences create the illusion that the United States pulled away, while Europe stalled out.

When you look at current price purchasing power parity instead of an old 2010 benchmark, the gap vanishes. Measured at current price levels, European workers generate almost the same output per hour as American workers. Aggregate wealth remains comparable. What Draghi and Dimon sell as an economic collapse is simply an artifact of chained index numbers. As Leusder states, the claim is “simply no such thing. It's not established by any sort of solid economic data.”▶ 22:44

What to Do With This

Audit your company's expansion models for phantom macroeconomic penalties. If your pitch deck or go-to-market plan discounts European customer willingness-to-pay based on headline GDP comparisons from Draghi or Dimon, rerun your pricing using current-year local purchasing power parity instead of constant 2010 dollars. You will find that software buying power across major European hubs matches tier-two American markets dollar for dollar.