$860 Billion EU Rearmament Plan Boosts Defense Stocks

European defense companies are poised to benefit from a major boost in military spending, as the European Union reacts to shifting global dynamics and a reduction in U.S. commitment to European security under President Donald Trump. The $860 billion "ReArm Europe Plan" aims to overhaul the continent’s defense capabilities, but it faces significant opposition from Hungary, which warns that continuing to arm Ukraine against Russian aggression could bankrupt the EU.

Stock Surge

European defense stocks have surged recently, defying broader global market uncertainties sparked by concerns over a potential trade war between the U.S. and other nations. Companies such as Germany’s Rheinmetall, makers of the Leopard tank, have seen their share prices soar nearly 90% since the start of the year. Similarly, stocks for British arms giant BAE Systems have risen by more than 30%, while Italy’s Leonardo and French defense firm Thales have also experienced substantial gains.

Analysts say that the EU's growing self-reliance on defense spending, after the U.S. signaled a shift away from Europe, is a key driver of the market's positive outlook. “The stock market has recognized that Europe must take its defense into its own hands, as the U.S. has clearly reduced its role as a reliable partner,” explained Tim Oechsner, a senior trader at Germany’s Wolfgang Steubing AG bank. “Higher defense spending is now expected, and defense stocks are set to benefit.”

ReArm Europe Plan

The initiative comes in response to growing concerns over European security, especially after President Trump’s years of calling for Europe to increase its defense spending. At a European Union summit in Brussels on March 6, 2025, leaders from 27 member states, alongside Ukrainian President Volodymyr Zelenskyy, approved the $860 billion rearmament plan. The initiative will be financed through EU bonds and relaxed fiscal rules on borrowing and spending, reflecting the bloc’s determination to strengthen its defense infrastructure.

Mattia Nelles, a consultant at the German-Ukrainian Bureau, pointed out that Europe has already demonstrated its ability to act swiftly in the past. “After the COVID-19 crisis, the EU mobilized hundreds of billions of euros in record time. The real challenge is less about the funds and more about the resolve to act decisively,” Nelles said.

In addition to the EU’s collective efforts, individual countries are also ramping up their defense budgets. Friedrich Merz, leader of Germany’s Christian Democrats and a likely future chancellor, recently pledged to ease Germany’s stringent borrowing rules—known as the “debt brake”—to allow for greater defense spending. “We must be willing to spend whatever it takes to ensure our freedom and peace on the continent,” Merz told reporters.

The U.S. decision to halt military aid to Ukraine and limit the use of American-made weapons has further fueled Europe’s drive to enhance its own defense capabilities.

Ukraine Support Amid Defense Buildup

Despite the significant financial commitment to rearm Europe, EU leaders have made it clear that support for Ukraine will remain a top priority. A five-point plan agreed upon during the Brussels summit includes $33 billion in aid to Ukraine for 2025 and reaffirmed the EU’s stance that no ceasefire negotiations should occur without Ukrainian involvement.

However, experts like Mark Galeotti, an analyst at Mayak Intelligence, caution that Europe’s rearmament efforts will take time. “Most of the new defense capabilities won’t have an immediate impact on the war in Ukraine. Building a robust defense-industrial complex takes months, even years,” Galeotti said.

Hungary’s Opposition

Not all EU members are on board with the plan. Hungary, led by Prime Minister Viktor Orban, has openly opposed continued support for Ukraine. Orban, who refused to sign the final leaders' statement during the summit, voiced concerns that Europe could not afford to sustain Kyiv’s defense efforts on its own. “If we continue down this path, we’ll spend our last penny on this war,” Orban said in a Hungarian television interview on March 7.

While Hungary's stance has created tensions within the EU, European officials have downplayed its significance. “The difference in opinion is clear—26 member states believe strengthening Ukraine’s defense is the way to peace, while Hungary stands isolated,” European Council President Antonio Costa responded, emphasizing that the consensus within the EU remains strong.

Outside the summit, demonstrators urged the EU to seize frozen Russian assets—estimated at $200 billion—and use the funds to support Ukraine’s defense. While some European leaders are open to the idea, concerns over the potential impact on the euro’s global standing as a reserve currency have dampened enthusiasm for such a move.

As Europe pushes forward with its rearmament plan, the continent faces both opportunities and challenges in bolstering its defense capabilities while navigating internal divisions and external pressures.