Europe’s labour productivity gap with the US has widened since the mid-1990s and again since the Covid pandemic. This column uses comprehensive cross-country firm-level and sector-level data to trace the roots of Europe’s productivity problem. It shows that productivity growth of Europe’s large leading firms has been trailing that of US counterparts. Young firms in Europe also exhibit weaker dynamism, have a smaller economic footprint, and there is an overabundance of mature small and low-