Investors bet on a significant increase in military spending across Europe, and the shares of European defense firms surged Monday.
Leading the rally were German weapons manufacturer Rheinmetall which rose 14% to Frankfurt. BAE Systems, based in London, soared by 16% and Leonardo, a company from Italy, gained 10%.
Rolls Royce grew by 5.7%.
Stocks surged after reports that Germany’s CDU/CSU parties and SPD, who are currently in coalition discussions, were considering the creation of two special funds for financing defense and infrastructure expenditure.
Germany, as Europe’s biggest economy, could be a major player in the defense sector.
As expectations grow that European governments are going to take greater responsibility for security on the continent, Stoxx Europe’s aerospace and defence index has continued its upward trend.
Trump-Zelensky Oval Office spat sparks European defense urgency
A tense Friday meeting between US president Donald Trump and Ukrainian president Volodymyr Zelenskyy has prompted a renewed focus on the military budget.
Trump’s refusal of to give Ukraine security guarantees has increased concerns about the need for European nations to act independently in order to prevent future Russian aggression.
In response, UK Prime Minister Keir Starmer convened a summit of European leaders in London on Sunday, calling it a “once-in-a-generation moment for the security of Europe.”
Meeting highlighted the increasing urgency for European countries to strengthen their defenses in light of changing US foreign policy.
Tomasz Weiladek is an analyst with T Rowe Price.
UK, France and Ukraine draft peace plan
Starmer, despite Trump’s position, insisted any peace plan for Ukraine needs American support.
He said that the UK would be working with France and Ukraine to create a plan to send to the US to ensure a lasting peace.
Starmer announced that a funding package of $2 billion for Ukraine would include more than 5,000 missiles used in air defense.
The President outlined the four principles that he believes are essential to ensuring a durable peace. These include: continued military assistance to Ukraine, economic pressures on Russia, Ukraine’s participation at any negotiations for peace to ensure its sovereignty, enhancing Ukraine’s defensive capability to prevent future invasions and building a “coalition” of willing to enforce peace.
Will peace continue if deployments are possible without US support?
More and more European leaders now discuss the possibility of sending forces into Ukraine without the US.
Luke Pollard, UK Armed Forces minister, suggested that European intervention might be needed to enforce peace agreements.
In an interview on Times Radio, Pollard stated that “military deployments could be possible”.
The point is that we are looking for a lasting and durable peace… Without the US, it will be difficult to achieve this durable peace.”
He stressed that European leaders were wary of any temporary truce that might allow Russia regroup and launch new attacks.
Geopolitical changes affect the markets
Stock markets in Europe rose on the back of geopolitical tensions, and increased expectations for defense spending.
Germany’s DAX rose 0.88% and France’s CAC gained 0.69%.
The main Italian stock index fell by 0.1%.
Investors and policymakers are closely monitoring how European countries navigate a new geopolitical environment as Starmer prepares his briefing to UK lawmakers after meeting with Trump and European Leaders.
Europe’s defence industry will play an important role in shaping Europe’s security policy as military expenditures are expected to increase sharply.
The post Rheinmetall and BAE Systems stocks soar as European leaders call for increased military spending could be updated as new developments unfold.
