The emergency defense summit in Paris on Monday on the eve of negotiations over the war in Ukraine strongly implies that a large increase in defense spending among European Union nations is coming.
That outlay may be as large as $3.1 trillion over the next decade, Bloomberg reported.
Any such move will impact foreign exchange and bond yields (both falling) as well as oil, energy and natural gas markets as the European continent reindustrializes.
Such a shift in spending would represent a major change in global finance including the possibility of large-scale issuance of joint European debt, which has serious implications for the global banking industry and the European Central Bank.
What’s more, the scenario under discussion would almost certainly preclude the return of natural gas imports from Russia. Continuing this cutoff would stimulate shipbuilding to transport natural gas from the U.S. and elsewhere to provide energy to Germany, the heart of European manufacturing.
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Already, the prospect of higher defense spending has boosted the share price of Rheinmetall, a German automotive, defense, electronics and engineering firm that has an American subsidiary, American Rheinmetall in Sterling Heights, Mich.. Rheinmetall is among the defense firms across Europe and the U.K. whose valuations increased on Monday. Its share price has increased by 119% over the past year.
One category of manufacturer that would benefit from significantly higher defense outlays is the “Mittelstadt,” or the small and medium-size firms that comprise the majority of German domestic firms.
In the end, a common E.U. defense buildup would provide substantial relief to many manufacturers, particularly in Germany, which has been caught in a de-industrialization trap as China has flooded global markets with cheap alternative vehicles and other goods.
