US AI Export Controls, Fable 5, and Europe's Real Decline - philippdubach.comSkip to main contentphilippdubach<br>Quantitative finance, AI, and the economics underneath.

On May 21, 2026, Paul Krugman called Europe&rsquo;s decline mostly a measurement artifact, with one exception he flagged as &rsquo;now very real&rsquo;: being cut off from strategic technology.<br>A June 12, 2026 US export-control directive forced Anthropic to suspend Fable 5 and Mythos 5 for all foreign nationals worldwide, and it stayed off through June 21.<br>Europe owns ~100% of EUV lithography through ASML but depends on the US for GPUs, a Synopsys-Cadence design-software duopoly above 90%, ~70% of its cloud market, and the closed-model frontier.<br>Europe&rsquo;s measured share of global AI compute is 4.8%, against the United States&rsquo; 74.5%.

×On May 21, Paul Krugman wrapped up a long argument that the European continent isn&rsquo;t really in economic decline. With one exception: Europe, he writes, &ldquo;can&rsquo;t be sure that it will always have access to new technologies developed and produced in the other superpowers,&rdquo; and &ldquo;the risk of being cut off from strategically important technologies, once minimal, is now very real.&rdquo; Twenty-two days later a US directive switched off a frontier AI model for every non-American (well technically - currently - also every American).<br>His argument (Noah Smith and the Garicano brothers on the other side) turns on a paradox: Since 2000, US measured productivity grew much faster than Europe&rsquo;s at constant prices, yet relative output per hour at current-price PPP barely moved, from about 86% of the US level to about 87%. Krugman reads the flat current-price line as closer to reality and the diverging constant-price line as a price-index shadow of concentrated, fast-deflating US tech. His critics read the divergence as real, captured as profit and equity instead of passed through to consumers.

×On the question, whether the typical European is getting poorer, I&rsquo;m mostly with Krugman. The median gap is roughly stable, his California-versus-rest-of-US comparison is hard to argue with, and constant-price productivity is a lousy proxy for how people actually live. For the most part, Europe is a fine place to live and isn&rsquo;t falling apart.<br>Related<br>Europe's $24 Trillion Payment Breakup Is Really a Bet on Infrastructure ArbitrageTechnology you don&rsquo;t own<br>the big benefits of IT come from applying it, rather than creating it

and Europe applies it well. True. There&rsquo;s an assumption buried inside &ldquo;apply, don&rsquo;t create,&rdquo; and it&rsquo;s that access stays frictionless and apolitical: the model, the GPUs under it, and the cloud it runs on will all be there at the world price. That assumption died on June 12. Henry Farrell and Abraham Newman have a name for what replaced it, weaponized interdependence. They call it the chokepoint effect: when an economy runs through a few hubs, whoever owns a hub can shut off everyone downstream.<br>Lithography<br>Lithography is ASML, roughly 100% of EUV, the machines nobody builds a leading-edge chip without, €32.7bn in 2025 sales. That&rsquo;s Europe&rsquo;s one real card. Fabrication is TSMC, around 70% of the foundry market, in Taiwan. The accelerators are Nvidia, 80 to 90% of AI-chip revenue and well over half the world&rsquo;s AI compute, locked behind CUDA. The design software is Synopsys and Cadence, a US near-duopoly above 90%, with Siemens EDA the only European player at about 13% and even that built on US tech. The cloud is AWS, Microsoft and Google, about 70% of the EU market, sitting under US legal jurisdiction. And the model frontier is US labs almost top to bottom, with Mistral the one European name that shows up and DeepSeek proving China can stand up a parallel stack under sanctions.

×The map is lopsided. Europe owns the single hardest chokepoint in the chain and buys everything else. In share of global GPU-cluster performance the US holds 74.5%, China 14.1%, the EU 4.8%. And even the ASML card is partly held in Washington, through US content inside the machines and the Foreign Direct Product Rule, which reaches foreign-made goods built with US technology.<br>Related<br>When AI Labs Become Defense ContractorsAt Washington&rsquo;s discretion<br>The usual objection is that governments threaten this stuff but rarely do it to allies. Lately they&rsquo;ve been doing it. In January 2025 the US issued the AI Diffusion Rule, which sorted the whole world into tiers for compute access and split the EU down the middle: ten members in the license-free top tier, seventeen in a capped second tier. In May the administration rescinded the rule and said, in writing, that it &ldquo;would have undermined U.S. diplomatic relations with dozens of countries by downgrading them to second-tier status.&rdquo; Treating allied compute access as a tiered privilege was judged too costly diplomatically.<br>What is worse than a bad rule for a (dependent)...