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US-Europe productivity gap widens

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The US overtaking Europe in productivity has fuelled fears that the EU is facing a ‘competitiveness crisis’, with policymakers calling for more public and private investment.

New data released on Friday showed that productivity in the eurozone fell by 1.2 per cent in the fourth quarter from a year earlier, while in the US it rose by 2.6 per cent over the same period, the Financial Times reported. Labour productivity growth in the US has been more than double that of the eurozone and the UK over the past two decades.

Bart van Ark, chief executive of the UK-based Productivity Institute, said: “In the long run, productivity growth in the US is expected to be higher than in Europe. Europe is not showing the same dynamism. This is widening the growth gap between the US and the EU,” said Bart van Ark.

Some economists argue that the US is growing faster than the eurozone partly because its population is younger, growing faster and working longer hours. But much of the output gap is due to the fact that people in the US produce more for every hour they work.

According to the FT, EU policymakers see this trend as deeply worrying and a reflection of a long-standing failure to catch up with US levels of private and public investment.

US worker productivity outperforms EU

Output per hour worked, a standard measure of labour productivity, has increased by more than 6 per cent in the US non-farm business sector since 2019, according to official data. This outpaces the eurozone and the UK, which grew by around 1 per cent over the same period.

In contrast to the ‘green’ stimulus in the US, the Eurozone has received less fiscal support from governments and has experienced a much larger rise in energy prices as a result of the war in Ukraine. The fragmentation of Europe’s financial markets, fiscal policy and regulation also makes it more vulnerable to external pressures than the US.

While there is no doubt that short-term factors have fuelled the US recovery, some economists say there is more to it. Gilles Moëc, chief economist at insurance company Axa, said: “Productivity in the eurozone has stalled. Now that the recovery has been going on for so long, we have to think about the possibility that something structural is going on,” said Gilles Moëc, chief economist at insurance company Axa.

Moëc estimates that if eurozone productivity continues to lag the US by the same amount, GDP growth will be one percentage point lower each year.

European Central Bank (ECB) executive board member Isabel Schnabel said last month that it was “more urgent than ever” for eurozone leaders to close the productivity gap with the US.

This is needed to tackle the “competitiveness crisis” as EU producers face higher energy prices and greater labour challenges than their American or Chinese counterparts, Schnabel said.

The ECB is also weighing when to cut record-high interest rates amid fears that falling productivity will increase labour costs for eurozone companies, raising the risk that inflation will remain high.

Schnabel said one of the main reasons for the eurozone’s weakness was its failure to capitalise on productivity gains from digital technologies, as the US did earlier. Schnabel said that promoting competition will be part of the solution, and called for faster and more effective implementation of the EU’s Next Generation Public Investment Programme.

Mario Draghi, the former head of the ECB, will report to the EU president later this year on more ambitious proposals to boost the EU’s competitiveness. Draghi is reported to have told the bloc’s finance ministers that they would need to find ‘enormous amounts of money, both public and private, in a relatively short period of time’ to boost investment to US levels.

EU decline is temporary, some economists say

However, not all economists are convinced that the recent US strength is evidence of a structural shift.

Erik Neilsen, chief economist at UniCredit, argues that the current weakness in the eurozone is a ‘statistical phenomenon’, as employers who struggled to hire in the post-credit upswing are now hoarding labour in the downturn. In his view, productivity could recover as the ECB’s tight policy squeezes demand until workers are eventually laid off.

Catherine Mann, an outside member of the Bank of England’s monetary policy committee, also told the FT last month that while US labour productivity figures look ‘very attractive’, they are driven by demand factors, notably a budget deficit of over 6%.

By contrast, demand is more subdued in the eurozone and the UK, where the economy entered a technical recession in the fourth quarter.

Claus Vistesen of Pantheon Macroeconomics said there were reasons to be optimistic about European productivity. “If we are indeed on the verge of a new technology-driven productivity boom centred on artificial intelligence and related services, it would be very pessimistic to assume that it will bypass the eurozone altogether,” Vistesen said.

America

Musk appointed co-director of Pentagon future warfare initiative

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The world’s richest man, Elon Musk, has assumed the co-directorship of a Pentagon initiative focused on the future of warfare, known as “Project Meridian”.

Musk’s new role was announced by US Secretary of Defence Pete Hegseth.

Musk, who has long expressed his conviction that wars will ultimately be fought with autonomous unmanned aerial vehicles, will advise the project as co-director alongside Palmer Luckey, founder of defence start-up Anduril, and former Speaker of the House of Representatives Newt Gingrich.

In a memorandum issued at the Pentagon, Hegseth stated that the group would “examine the battlefields of the future” and “determine which weapons and technologies warfighters must employ to achieve dominance in these environments.”

During his “State of the Force” address at Marine Corps Base Quantico, Hegseth said:

“The best predictors of future conflict do not reside exclusively within the Pentagon. Obvious biases and risks arise when we task ourselves with both framing the questions and answering them.”

Hegseth stated that this initiative would commence immediately and that, following his address, he would convene with Musk, Luckey, and Gingrich at a secure location.

Project Meridian will have 120 days to “ruthlessly map the trajectory of wars, domains, and technologies”, a process that will culminate in the public disclosure of its findings alongside a classified annex.

Hegseth outlined an expansive mandate extending “from beneath the surface of the Earth to beyond the Moon.”

Rather than formulating new military strategies or policies, the panel will seek to identify “the domains we must seize and the capabilities we must master”, focusing on the effort to “discover, develop, and field” the weapons and systems that next-generation American troops may require.

The group is expected to submit a report containing recommendations to him by the end of January.

In 2024, Musk remarked: “Future wars will be entirely about drones and hypersonic missiles.” This was merely one of several similar statements he has made in recent years.

For Musk, whose oversight role at the Department of Government Efficiency (DOGE) ended in turmoil and escalated into a dispute with President Donald Trump over Trump’s spending bill, this appointment marks his formal return to government in an official capacity.

Musk and Trump ultimately reconciled, and Musk attended a meeting on artificial intelligence safety at the White House this week alongside other technology leaders.

Meridian forms part of a broader push announced by Hegseth to restructure the military around autonomous warfare and rapidly advancing technologies.

Hegseth announced the establishment of the Autonomous Warfare Command (AUTOWARCOM), a new four-star combatant command endowed with what he termed “service-like authorities” to scale autonomous and robotic capabilities across the joint force.

The Department of War will also begin phasing in new occupational frameworks across all military branches to establish specialised career tracks for what Hegseth described as “the next generation of autonomous warfighters.”

“We should have conceived an Autonomous Warfare Command a decade ago,” Hegseth said, explaining that Meridian aims to gaze far enough ahead to enable the military to anticipate the next technological shift rather than lag behind.

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Pentagon breach exposes personal records of three million people

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A cyberattack targeting the US Department of War’s personnel database has resulted in the leak of personal information belonging to approximately 3 million people.

Speaking to ABC News, a Pentagon official stated that the system accessed by unauthorised individuals contained the records of 2,760,000 living persons and 294,000 deceased individuals.

The Military Times portal, which first broke the news, had reported the number of affected individuals as approximately 4 million based on two sources. The Pentagon official subsequently conveyed different figures to ABC News.

The leak encompasses Social Security numbers and duty information belonging to military personnel and civilian employees. According to an official notification examined by Military Times, the compromised records may also include names, dates of birth, contact information, sex, race, and military occupational specialties.

The unauthorised access to the information system of the Defense Manpower Data Center (DMDC) lasted for approximately nine months, between October 2025 and 16 July 2026.

ABC News reported that the access in question was obtained by a small number of third-party users. The vulnerability was closed after it was identified.

The DMDC is considered one of the Pentagon’s primary personnel records centres. More than 60 million records belonging to active-duty personnel, reservists, civilian staff, contractors, retirees, veterans, and military family members are stored at the centre.

The Pentagon has not detected any evidence that the leaked data has been misused. Military Times reported that affected individuals were offered identity restoration and credit history monitoring services.

A similar data breach previously occurred on the Federal Bureau of Investigation’s (FBI) recruitment website, FBIJobs.gov. According to information obtained by ABC News from internal communications and sources, the FBI is considering the possibility that data belonging to its entire staff may have been stolen.

The New York Times (NYT) examined a portion of the stolen FBI records. Home addresses, telephone numbers, official email addresses, Social Security numbers, dates of birth, hiring dates, and emergency contact details for relatives were identified within these documents.

The database also contained unit designations, duty roles, and information regarding the supervisors of personnel. Some records revealed assignments within counterintelligence and counternarcotics units, as well as departments examining threats originating from Russia, China, and Iran.

Ciaran Martin, the former head of the UK National Cyber Security Centre, noted that this type of breach could directly affect the FBI’s operational capabilities.

The hacker group known as ShinyHunters had announced that it had seized medical data and security clearance records alongside files belonging to tens of thousands of active and former FBI employees.

Experts evaluating the matter for the NYT warned that this information could be used to track agents, threaten their families, or compile dossiers by foreign intelligence services.

The ShinyHunters group initially threatened to release the data unless the bureau withdrew an advisory it had published concerning the group’s attack methods.

The group later asserted that it had never intended to leak the information and characterised its action as an advertising campaign.

In a report published in May, Reuters noted that the personal data of US military personnel had been used in surveillance and attack preparations.

According to the agency, Washington’s adversaries gained the ability to pinpoint areas where troops were concentrated by exploiting commercially available location data. US lawmakers at the time criticised the Pentagon for failing to adequately protect the personal data of military personnel.

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Canada diversifies oil and gas exports away from US

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US President Donald Trump’s trade policy and the Washington administration’s push to increase Venezuelan oil imports are prompting Canada to diversify its energy exports.

According to a report by The Wall Street Journal, recent developments are accelerating Canada’s development of new oil and natural gas projects.

Steps taken by the Ottawa administration, which aspires to become an energy superpower, are seen as potentially strengthening the country’s position in global markets.

In Canada, the world’s fourth-largest oil producer and fifth-largest natural gas producer, the energy sector accounts for approximately one-fifth of total exports.

Almost all of the country’s natural gas exports and approximately 90% of its oil exports go to the US.

The newspaper writes that the trade war with Washington and the atmosphere of confrontation entered into with Iran have heightened Canada’s desire to turn to alternative markets outside the US.

Officials plan to increase shipments of oil and liquefied natural gas (LNG) to European and Asian markets.

Accelerating infrastructure investments in line with this target, Canada is also shortening approval processes. The government is prioritising the construction of an oil pipeline extending specifically to the west coast.

According to the newspaper’s estimate, if major pipeline projects are implemented, Canada’s daily oil transport capacity could rise to 6.8 million barrels by 2034.

Routes heading to the west coast will make up approximately 30% of this capacity.

The Canadian administration is simultaneously advancing LNG export projects. According to the report, these investments could allow approximately 55% of Canadian natural gas exports to be directed to markets outside the US by the early or mid-2030s.

While the government expands tax incentives for the oil and natural gas sector, the province of Alberta also plans to overhaul its royalty system.

However, the newspaper notes that implementing the new projects requires heavy investment, and the process depends on the final decisions taken by producers as well as the completion of regulatory approval processes.

The expansion of pipeline and LNG infrastructure could gradually reduce Canada’s dependence on the US market while raising its share in the global energy market.

The Canadian Prime Minister’s demand to reduce reliance on the US market had also come to the fore in July.

According to Carney’s statement, the province of Alberta submitted a plan for a pipeline spanning more than 1,000 kilometres to the west coast of British Columbia.

Targeted for completion by September 2027, the line will reach the Pacific coast by following an existing corridor through the mountainous terrain.

This shift in energy comes at a time of strained relations with the US. Donald Trump said that if Canada obtains associate member status in the European Union, he could halt trade with Europe in certain sectors and impose high tariffs.

As reported by the Associated Press, Trump characterised such a rapprochement as a “potentially hostile act”.

European Commission President Ursula von der Leyen had proposed opening the path for Canada to become the EU’s first associate member. The terms of this associate membership status, which is not defined in EU treaties, are not yet clear and require the approval of member states to enter into force.

Canada, which does not seek full membership, aims for maximum rapprochement with the EU.

Following Trump’s return to the White House, relations between Washington and Ottawa deteriorated. The Trump administration, which repeatedly called on Canada to become the “51st state” of the US, introduced additional tariffs.

In July, the US began imposing 50% tariffs on certain Canadian-origin goods.

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