European Arms Companies Experience Sharp Increase in Value Due to Accelerated Military Spending Projections

Shares of European arms giants have risen significantly due to the expected rise in military spending by European Union countries.

On March 3, shares in Rheinmetall, Germany’s biggest defense company, rose by 13.7 percent, while Leonardo climbed by 16 percent in Milan. Thales in France saw a surge of 16 percent, and BAE Systems in the UK jumped by 14.5 percent.

These gains pushed the STOXX Aerospace and Defense index, which includes European companies associated with military defense, up by 1.1 percent to reach a record high.

The DAX, Germany’s blue-chip index, experienced its largest one-day jump since November 2022, closing at a record high, along with the FTSE, the benchmark index in the UK.

“The market is responding positively to the optimism surrounding increased defense spending and the potential for a peace plan, boosting not only defense stocks but also overall optimism,” stated Fiona Cincotta, a senior market analyst at City Index.

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President Donald Trump has emphasized the need for European leaders to increase military support for Ukraine in anticipation of a peace deal with Russia.

Analysts suggest that recent events have accelerated the EU’s move towards higher defense spending.

According to a report from JPMorgan analysts in Proactive Investors last March, the rearmament cycle in Europe is projected to last a decade or more.

JPMorgan analysts noted on Monday that recent events have further boosted their forecast of a European rearmament cycle.

“With 30 European countries in NATO, we expect many of them to commit to significantly higher defense spending soon,” they explained in a statement.

RBC Capital Markets Global Macro Strategist Peter Schaffrik remarked, “Europe is at a turning point and realizes the need to take charge in defense and security.”

“The recent German elections have paved the way for increased spending. The Zelenskiy-Trump debacle has accelerated everything,” he added.

Francois Savary, chief investment officer at Genvil Wealth Management, believes Europe is approaching a critical juncture.

“If European leaders come together, we are close to a tipping point,” he stated. “I believe something significant will happen as the pressure mounts.”

Led by Friedrich Merz, the CDU has been pressed to adjust the debt brake to finance military modernization and boost defense spending, although such a change would require two-thirds approval in the German parliament.

Deutsche Bank Chief Economist Robin Winkler highlighted a “paradigm shift” taking place in Germany.

The EU estimates that 500 billion euros ($523 billion) in investments will be required over the next decade, with significant borrowing anticipated to cover these expenses.

As per the regulations, member states are obligated to follow a fiscal policy aimed at keeping government deficits below 3 percent of GDP and debts below 60 percent of GDP.

Eight of the EU’s 27 member states, including France, Italy, and Poland, are facing formal reprimands from the European Commission for exceeding the 3 percent threshold.

During her speech at the Munich Security Conference, Von der Leyen stated, “There should be no doubt that when it comes to European security, Europe needs to do more, contribute more, and to achieve this, a surge in European defense spending is necessary.”

Reuters, Chris Summers, and Guy Birchall contributed to this report.