The stocks of European defense companies soared Monday as investors anticipate massive increases in military spending by governments in the region amid its growing rift with the United States.
The STOXX Europe Total Market Aerospace & Defense index had surged almost 7.9% by early afternoon local time, which put it on course for its biggest one-day jump in about five years. The index has risen more than 30% so far this year.
Europe is confronting a worrying new reality: that the US, the continent’s longtime ally and security guarantor, may not help it defend itself in a future war.
America’s new approach was further underscored Friday during an explosive meeting between US President Donald Trump and Ukrainian President Volodymyr Zelensky in the White House. Ukraine, on the doorstep of the European Union, has been pushing for firm security guarantees from the US in any peace deal brokered between itself and Russia, but Trump has so far refused to provide them.
As a result, investors in European defense companies have been expecting larger orders, aimed at beefing up the region’s defenses.
The shares of Germany’s Rheinmetall were trading up 12.9% by early afternoon local time Monday, while those of BAE Systems in the United Kingdom had jumped 14.3% and Italy’s Leonardo 12.1%.
‘Urgent’ need to re-arm
On Sunday, government leaders from the EU, UK and Canada met at a summit in London, focused on ways to support Ukraine in its fight against Russia.
“We urgently have to re-arm Europe,” Ursula von der Leyen, the head of the EU’s executive, told reporters on the sidelines of the meeting. “After a long time of under-investment, it is now of utmost importance to step up the defense investment for a prolonged period of time.”
Later this week, EU leaders will gather for a special meeting to discuss their support for Ukraine, as well as the bloc’s own security.
EU nations spent 1.9% of their combined gross domestic product on defense last year. French President Emmanuel Macron said in a newspaper interview Sunday that the bloc should aim to spend around 3% or 3.5% of GDP, and the secretary general of the NATO alliance has recently argued for European milit ary spending of “north of 3%.”
Holger Schmieding, chief economist at Berenberg, a bank, said in a note Monday that European NATO members can “still hope” for the US to defend them against Russia in a potential future conflict “but they can no longer be 100% sure.”
“Trust between the two sides of the Atlantic has been damaged,” he wrote, adding that “Europe and Germany in particular must — and very likely will — raise defense spending for themselves as well as for Ukraine.”