Germany to Invest 100 Billion in Military: Will Arms Stocks Benefit?
Although the German government has been criticized in the past for not spending enough on defense, the war in Ukraine will soon change that. Come read our blog to learn more.
Since the start of the war in Ukraine, Europe has changed, particularly Germany's stance on military and defense policy. Germany has maintained a relatively small fighting force in comparison to its economic power since World War II. It has also stayed out of international armed conflict. But now that Europe is at war, Germany is being forced to change its policy.
Defense Spending
Germany's allies have long criticized the German government for not spending enough on the military. As a general rule, NATO members must invest at least 2 percent of their annual GDP on defense. However, Germany has not reached this level of spending since the end of the Cold War. As a result, the German military is significantly underfinanced.
Now that will change, according to the German Chancellor Olaf Scholz. The government has announced to spend 100 billion Euros on the military as a one-off expense. It has also announced that Germany will meet its annual defense spending target of 2 percent of GDP in the future. Although the details of how exactly that money will be spent are not yet publicly known, it is clear that Germany will spend significantly more money on defense than it did in the past.
Arms Manufacturers to Benefit
Arms manufacturers have already announced that they are ready to supply the government with anything from ammunition to heavy artillery. German arms stocks such as Rheinmetall or Hensoldt have significantly increased in value after this announcement. Similarly, arms stocks in other countries such as the US or Great Britain have also significantly gained value after the war in Ukraine broke out.
However, after the initial surge in arm stock prices, they fell precipitously again. The stock market's initial reaction appears to have been exaggerated. However, in the long run, Western countries will likely spend more money on defense than in the past, as Russia's aggression surprised Europe. The US is now competing with Russia in Europe and China in the Asia Pacific. Arms manufacturers' revenues and stock prices are likely to rise in the long run.
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