European Defense Stocks Surge Amid Anticipation of Increased Military Spending

European defense stocks experienced a sharp rise on Monday as investors reacted to expectations of increased military spending across the region.

The surge followed a diplomatic push led by the UK and France to broker a peace deal for Ukraine, alongside concerns about the future of US security commitments to Europe.

Several major European defense companies saw significant gains in early trading. Britain’s BAE Systems rose by 17%, Germany’s Rheinmetall gained 14%, France’s Thales climbed 16%, and Italy’s Leonardo increased by 10%. The Stoxx Europe Aerospace and Defense Index surged by 8%, marking its strongest session in five years.

One of the biggest movers was Germany’s Hensoldt, which jumped 29% in afternoon trading. Other companies posting strong gains included Renk Group (+18%), Dassault Aviation (+17%), and Rolls-Royce (+7.2%). Swedish firm Saab also saw an uptick, along with Italy’s Leonardo and France’s Thales.

The rally comes amid rising concerns that the US might scale back its support for Ukraine. Former US President Donald Trump recently stated that Ukraine was “not ready for peace” and hinted at withdrawing US security assistance. This uncertainty has prompted European leaders to take a more proactive stance on defense spending.

UK Prime Minister Keir Starmer hosted a summit in London with Ukrainian President Volodymyr Zelenskyy and 18 other European leaders to discuss a peace initiative and increased military aid. The UK announced plans to raise defense spending to 2.5% of GDP by 2027, earlier than originally planned.

Meanwhile, French President Emmanuel Macron called for European countries to increase military expenditure beyond 3% of GDP, while Germany’s likely new chancellor, Friedrich Merz, is considering establishing special defense funds that could unlock €400 billion ($416 billion) for military and infrastructure spending.

Analysts at JPMorgan described the current trend as a “turbocharged European rearmament cycle,” predicting that many NATO countries will significantly boost their defense budgets. Economic experts suggest that Europe’s shift towards self-reliance in military production will likely continue, reducing its dependence on US-made equipment.

Holger Schmieding, chief economist at Berenberg, emphasized that Germany and other European nations will likely increase defense budgets beyond current plans, particularly in response to geopolitical tensions.

The surge in defense-related stocks is also reflected in aerospace companies. Airbus rose by 3%, Safran gained 2.7%, and Rolls-Royce saw its shares hit a record high. QinetiQ, a British defense technology firm, climbed 8%, and France’s Dassault Aviation jumped 14%.

European Commission President Ursula von der Leyen confirmed that the EU will unveil a new “Rearm Europe” plan aimed at strengthening the bloc’s military capabilities. She stated:

“We want lasting peace, but lasting peace can only be built on strength, and strength begins with strengthening ourselves.”

The defense sector’s rally aligns with broader market gains. The Stoxx 600 index rose by 1.2% in London, with Germany’s DAX and the UK’s FTSE 100 also posting gains.

Reuters, the Guardian, and CNBC contributed to this report.