In the bars, hotels and windowless conference halls of the World Economic Forum in Davos, two themes dominated the conversation: America’s ascendancy and Europe’s decline.

If the scale of the continent’s problems was unclear before politicians and chief executives descended on the Swiss ski resort, there was no ambiguity by the time Donald Trump had finished speaking.

The 47th president of the US beamed via video into a packed conference hall to rail against stifling European regulation, car exports flooding to the US and fines and penalties on Apple, Google and Facebook.

No longer will members of Nato be able to freeload off America’s security guarantee, he added, demanding they increase defence spending to 5% of GDP – a barb aimed squarely at Europe.

“From the standpoint of America, the EU treats us very, very unfairly, very badly,” he said. “We have some very big complaints with the EU.”

Soul searching

Trump’s return to the White House has sparked a wave of soul searching across Europe. His America First doctrine and threat of tariffs on EU goods have left Europe’s elite wondering how it can close the growing economic gulf with the US – and find the billions needed for extra military expenditure.

In countless conversations at Davos, business leaders and politicians laid bare the problems facing the EU: from stagnation in the core economies of France and Germany and failure to rival the American tech titans, to the rise of populism and the Ukraine war on its doorstep.

Long before Trump arrived in the White House, the European Commission signalled its concern about weak productivity and sluggish growth across the 27-member bloc by commissioning former European Central Bank (ECB) president Mario Draghi to recommend solutions.

In his 393-page report Draghi warned Europe’s productivity was “weak, very weak” and called for deeper integration and massive coordinated investment.

Since then, things have got worse. The International Monetary Fund is projecting 2.7% growth for the US economy in 2025, against just 1% in the euro area. German GDP has now contracted for two successive years.

Karen Harris, the managing director of macro trends at consultancy Bain and Co, described Draghi’s doom-laden report as “shaped like a punch in the face”, but added, “somehow, it didn’t penetrate”.

“This is a European gathering,” Harris said. “People come from all over the world, but we’re in Europe, and there is this sense of how far behind Europe has fallen from global leadership in business and innovation.”

She suggested EU leaders were progressing through the seven stages of grief about their economic standing in the world. “It feels like now we’re in bargaining and depression. And there’s a sense of that kind of stillness, almost as people are absorbing it.”

The European Commission president, Ursula von der Leyen, tried to chart the course to the next stage – acceptance and hope – with a hard-hitting speech.

“In the last 25 years, Europe has relied on the rising tide of global trade to drive its growth. It has relied on cheap energy from Russia, and Europe has too often outsourced its security. But those days are gone,” she told the assembled business and political leaders.

Von der Leyen said the commission would lay out its five-year roadmap next week, based on Draghi’s recommendations, including plans for a “savings and investments union” so that more of the €300m (£253m) of EU families’ cash she said flows out of the continent annually could be invested at home. A capital markets union, to try to stem the flow of money and companies from the continent, is also planned.

“To sustain our growth in the next quarter of the century, Europe must shift gears,” she said.

America First

Up and down the Promenade, the Alpine resort’s main street, US tech might was everywhere to see.

Meta was demonstrating its Ray-Ban-designed smart glasses; Google showed off its new AI-powered personal assistant, Project Astra; Uber demonstrated its delivery robots. But it was hard to find a European company generating a buzz – aside from Zurich insurance, which was liberally distributing free bobble hats.

Draghi’s report underlined that disparity: the EU has not created a single €100bn company from scratch in the past 50 years, while the US has built six worth more than €1tn in that period.

Inside Uber’s pavilion, Dara Khosrowshahi had just returned from Washington and the inauguration celebration.

“It’s an exciting time,” said the taxi and delivery app’s chief executive, who donated $1m to Trump’s inaugural fund. “The gathering of business leaders was quite extraordinary and the mood was quite positive. You can see, whether you agree with the words or not, that there’s a window. There’s permission to move quickly.

“The sense of optimism and action was palpable. Now it’s time for execution.”

But few executives were convinced the EU can match that energy. “I heard the EU talking about the willingness to make changes,” said the chief executive of a European bank. “The truth of the matter is every time they do something they create more bureaucracy, more complexity. They need to have a huge reset.”

Nicolai Tangen, the boss of Norway’s sovereign wealth fund, the world’s biggest, recently returned from a month in New York with no doubts about the strength of US “animal spirits”.

“There is less regulation, less red tape, more speed, more enthusiasm,” he said. “At the same time, you are not seeing any of the same things in Europe. I love Europe, but there isn’t too much showing there.”

Unless Europe acts fast, its social fabric risks unravelling warned Tangen, whose $1.6tn fund owns about 1.5% of all the listed companies in the world.

“It depends on how gloomy you want to go,” said Tangen, a former hedge fund boss. “But you know, the whole social fabric, I mean, it costs money, right?

“So you need to have a competitive economy in order for society to continue to function the way they do now.”

Fraying at the seams

For politicians trying to hold together the continent’s economy, Trump’s demand that European car companies build factories and create jobs in the US underlines the challenges they face on home soil.

Germany’s biggest carmaker, Volkswagen, which is trying to close three factories in its home market, told Davos it plans to increase investment in the US.

VW will double its market share in the US from about 4% now, its chief financial officer Arno Antlitz told Reuters. “We need additional initiatives … to double market share, you have to be even more local.”

Robert Habeck, the vice-chancellor of Germany and finance minister, said Germany needs to build more cheap electric cars, and to do that, needs cheap electricity.

“I hope everyone has heard it and I hope every German politician has understood it. It’s a structural crisis,” he said.

“Our economy is not growing since 2018. Our growth potential is going down since one and a half decades.

“That means we have to reinvent our business model because our business model relied on two factors mainly: cheap gas from Russia or cheap fossil energy from Russia. But that’s gone and I guess it won’t come again.”

Whatever von der Leyen’s hopes for a shift of gears, domestic political pressures are likely to put the brakes on plans for closer economic integration.

The far-right Alternative für Deutschland party is expected to make significant gains in the German elections on 28 February – though not to enter government. French president Emmanuel Macron is under intense pressure from Marine Le Pen’s National Rally. Neither party favours further EU integration, and both lend a strident nationalist tone to political debate.

And the harmonious vision of a pan-EU capital market von der Leyen painted looks hard to achieve while individual member states continue to go out to bat for their own national banks and stock exchanges. The German government vehemently opposed the recent takeover bid for Commerzbank by Italian lender Unicredit.

Still, some reckon Europe’s self-flagellation has gone too far. Larry Fink, the chief executive of the US asset management giant BlackRock, said the pessimism has “never been larger and more profound”.

But that may be the wake-up call the continent needs – if it can learn from the innovation and entrepreneurialism of the US. Plus markets may be underestimating the risks from a wave of inflation, warned Fink – something Trump’s tariffs could unleash.

“I believe it is probably time to be investing back into Europe, focusing on it.”