European leaders have been scrambling to rebuild their long-neglected militaries, spurred by the US hard-line geopolitical stance in the Eastern Pacific.
In response, the share prices of European weapons companies have soared.
After the Ukraine summit in London on March 2, European leaders and others, on the invitation of UK Prime Minister Keir Starmer, came together to discuss a peace plan for Ukraine.
Calling themselves a “coalition of the willing”, the countries said they wanted to take control of the Ukraine negotiations regarding the war with Russia.
That came after mineral deal talks in Washington on February 28 descended into a slanging match between US President Donald Trump and Ukrainian President Volodymyr Zelensky.
Starmer said the West was at a “crossroads in history” and that it was “not a moment for more talk” but “time to act”.
Next to Ukraine’s short-term needs and securing a “lasting deal” to end the conflict, the leaders also discussed “planning for strong security guarantees”.
That was seen to mean creating a credible military force to keep hostile entities at bay and, thus, higher military spending.
In reaction, European defence companies saw their share prices surge.
The pan-European STOXX 600 index rose 0.3 per cent at 09:32 GMT on March 3, poised to extend its 10-week winning streak, Reuters reported.
The European aerospace and defence index surged 6.5 per cent to a record high.
Rheinmetall was up 11.4 per cent to an all-time high, while BAE Systems climbed 13.5 per cent, Leonardo gained 11.6 per cent and Rolls-Royce advanced 5.7 per cent.
France’s Thales and Dassault Aviation also saw significant gains, of 11.7 per cent and 13.4 per cent, respectively.
Germany’s blue-chip index jumped 0.9 per cent, hovering near a record peak.
The Dax keeps climbing, breaking past 23,000 as if Germany had suddenly turned into the land of milk and honey. Defense stocks like Rheinmetall and Airbus are leading the charge, but automakers are also surging after the EU announced plans to suspend CO2 emission penalties for… pic.twitter.com/gi3enUxFdN
— Holger Zschaepitz (@Schuldensuehner) March 3, 2025
“The market is rising on this optimism over defence spending and potential for a peace plan which is not only boosting defence stocks, but it’s also boosting optimism broadly,” Fiona Cincotta, senior market analyst at City Index, told Reuters.
Since the beginning of the war, members of the European Union have increased their defence spending but the pace and scale has been slower and less transformative than was originally expected.
Small and medium-sized enterprises (SMEs) such as drone makers have struggled to secure venture debt or equity as banks remained cautious about the defence sector’s ethical and repayment risks.
The European Investment Bank (EIB), traditionally limited to dual-use projects (50 per cent bank and 50 per cent civilian revenue), only loosened criteria in May 2024, planning €2 billion in security loans for 2025. That was still a fraction of the €500 billion the European Commission estimated was needed over the coming decade.
The 2022 Russian invasion triggered a sharp reversal, with EU collective defence spending rising from €198 billion in 2020 to a projected €326 billion in 2024 — a 17 per cent increase from 2023, according to the European Defence Agency.
Much of this surge has been directed toward replenishing depleted stockpiles sent to Ukraine and addressing long-neglected capabilities, rather than developing new, large-scale military capacity.
Analysts described that as “making up ground” rather than a transformative strategic shift.
In addition, economic growth across the bloc has been sluggish at best and the “green” energy transition has proved much more costly than anticipated, while inflation has remained high.
Until now, European countries have continued to buy defence material from non-EU countries.
In his report, former president of the European Central Bank Mario Draghi pointed out that 63 per cent off-the-shelf purchases came from the US and 15 per cent from other countries, such as South Korea.
Joint EU procurement, including the €2 billion 155mm shell initiative, has faced similar issues, with France pushing to “buy European” while countries such as Poland chose speed of delivery over origin.
‘Rising obesity threatens Sweden’s defence capabilities,’ says Brigadier General
The Swedish Defence Force’s General Physician, Brigadier General Claes Ivgren, has voiced concerns about the declining physical health of Swedes. pic.twitter.com/u7zyZrn82N
— Brussels Signal (@brusselssignal) January 11, 2025
On March 2, Starmer pledged 5,000 air defence missiles for Ukraine.
“Every nation must contribute to that in the best way that it can, bringing different capabilities and support to the table, but all taking responsibility to act, all stepping up their own share of the burden,” he said.
European Commission President Ursula von der Leyen called for the rearmament of Europe.
After the meeting, von der Leyen said the EC would soon present a plan for rearming Europe.
“We have to put Ukraine in a position of strength,” she said.
The country must have “the means to fortify and strengthen itself” and ensure its “economic survival and military resilience” in the short and long term, von der Leyen added.
Europe has said it wanted to keep aid going to Ukraine, while maintaining economic pressure on Russia to bolster Ukraine’s position ensuring it had a seat at the negotiating table. It insisted any peace agreement had to guarantee the country’ sovereignty and security and that it continue arming Ukraine to deter future aggression.
NATO chief Mark Rutte said more European countries would increase defence spending and that the US remained committed to the alliance.
“It was very good news that more European countries will ramp up defence spending,” Rutte said.
Dissident voices, though, have come from Hungary and Ukraine.
“European leaders decided in London today that they want to go on with the war instead of opting for peace. They decided that Ukraine must continue the war,” Hungarian PM Victor Orbán said.
“This is bad, dangerous and mistaken. Hungary remains on the side of peace. Ceterum censeo.”
Likewise, Slovakian PM Robert Fico said his country would not support Ukraine either financially or militarily.
REGARDING YESTERDAY’S TRUMP – ZELENSKY MEETING pic.twitter.com/T9C4aHdXDh
— Robert Fico 🇸🇰 (@RobertFicoSVK) March 1, 2025
