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The US has poured more than $120 billion into Ukraine since the war with Russia began three years ago, but a new administration in Washington has shattered its halt.
The White House announced last week that further military aid will be suspended until President Donald Trump can determine that Ukrainian President Voldy Zelensky is making an effort to negotiate peace with Russia.
This decision puts Ukraine in a volatile position. With no additional US support, Western officials estimate that Eastern European countries have enough weapons to maintain the pace of current combat until mid-2025.
In response, European leaders have taken decisive action and are launching unprecedented military spending that is already restructuring the global market.
Cumulative aid to Ukraine: US vs. Europe
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Germany takes the lead by increasing military spending
Germany, Europe’s largest economy, is led by Germany, who vows to do “anything necessary” to support Ukraine, vows to Friedrich Merz on standby. He even pledges to amend Germany’s constitution to exempt defence spending from strict financial constraints in the country.
The market is responding proactively. German stocks are gathering, with the DAX index rising more than 22% until March 6th, compared to the S&P 500’s loss of more than 2%.
European stocks surpass US stocks on increased defense spending
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The euro also recovered from its recent low, erasing its losses since the US presidential election in November.
The Euro has recovered losses since the US presidential election
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EU announces $840 billion plan to strengthen defense
Other European countries are moving in the same way. French President Emmanuel Macron issued a harsh warning in a speech aired last Wednesday, declaring that Europe must prepare to protect Ukraine without US support. He said that abandoning Ukraine now burns Moscow alone and says, “Who can we believe… Russia will stop in Ukraine? Russia is a threat to France and Europe and remains.”
Meanwhile, the Czech government has announced plans to raise its defense budget to 3% of GDP by 2030, from the current 2%.
Brussels responded with an unprecedented $840 billion plan to strengthen military readiness across the continent. Last week, the Commission established a framework for mobilizing resources on a scale that has never been seen before.
The European Union leaders have reportedly agreed to temporarily lift fiscal rules limiting government deficits, so much of the money is reportedly coming from direct national expenditures. Additional funds will be available in the form of loans to governments seeking to modernize the defense industry.
An analysis by European research firms Bruegel and Kiel estimate that annual defence spending would cost at least 250 billion euros to establish truly independent military deterrence against Russia. It means deploying tens of thousands of additional soldiers, acquiring thousands of new tanks and infantry combat vehicles, and strengthening the production of long-range drones and other advanced military technologies.
European weapons manufacturers see record profits
This wave of spending has fueled a ferocious rally in European defense stocks as investors bet on long-term demand for military hardware.
The defense company is one of the best performing stocks in the global market this year. Italian Leonardo and French Thales have seen stocks rise 85%, while the UK’s BAE system has risen nearly 50%. German Rhinemetal, a leading supplier of armored vehicles and artillery systems, has more than doubled as of Thursday, March 6, but fell on Friday on news that Russian President Vladimir Putin is ready to agree to a ceasefire.
European weapons manufacturers are gathering increased defense spending
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Russian military losses are mounted
The accumulation of Europe occurs when Russia’s ability to stay in battle is increasingly questioned. Although it maintains its strategic advantage in nuclear capabilities, Russia has an estimated 5,580 nuclear warheads, but most other countries suffer huge losses from traditional troops.
Russia’s $2 trillion economy is estimated to have an EU GDP of $20 trillion, with a population of about 145 million being significantly surpassed by the EU’s 450 million. Since 2022, the biggest escape since the Bolshevik Revolution, hundreds of thousands of Russians have left the country, further straining the country’s labor force.
According to the British Ministry of Defense, on the battlefield, Russia is estimated to have lost more than 875,000 soldiers. These losses, combined with Western sanctions, make Russia’s long-term military status more vulnerable than it appears.
China will expand its defense budget as Pacific tensions grow
The arms race is not limited to the West. China has announced a 7.2% increase in military spending this year as it continues its efforts to expand its influence in the Pacific.
Taiwan is putting pressure on its defense budget to stop potential invasions from Beijing. Japan has also been urged to increase its metaly spending, but its leaders have insisted that foreign governments will not allow direct defence budgets.
Investors are paying attention
As Washington’s inward focus is on, security orders after World War II have changed, and Europe must take greater responsibility for its own defense.
As I cover, this result is already being rolled out in the financial markets. For investors, I think this is not just a short-term trend, but a change in the global defence environment. As history shows, when states prioritize military spending, the market continues.
