Europe Rearms After Trump Greenland Push, Defense Stocks React

Munich Shift Forces Europe To Build A Bigger Arsenal

European leaders used the February 15, 2026 Munich Security Conference to signal a faster move toward self-reliance in security, as President Donald Trump’s renewed push to annex Greenland sharpened doubts about how Washington would respond in a future crisis. The political reset immediately fed into markets, with defense stocks outperforming broader European indexes and longer-dated borrowing expectations edging higher as investors priced in larger procurement pipelines.

Ursula von der Leyen, the European Commission president, summed up the mood with a warning that “some lines have been crossed,” a phrase that investors treated as a green light for sustained spending rather than another short-lived pledge. The catalyst has been building since Trump’s return to office in 2025, but the Greenland dispute added a fresh strategic flashpoint in the Arctic that forced capitals to show they can act without waiting for U.S. direction.

NATO Targets Jump, Making Budgets The First Market Test

NATO members agreed in 2025 to raise core defence spending targets from 2% of gross domestic product to 3.5%, with another 1.5% aimed at broader security-related investment, a shift that transforms fiscal math across Europe. The change matters for sovereign debt because moving from 2% to 3.5% implies a large and persistent increase in annual outlays, even before counting multi-year catch-up orders for ammunition, air defence, and long-range strike.

Von der Leyen said European defence spending has risen nearly 80% since before the Ukraine war began in 2022, but the new targets imply another step up through 2026–2028. For bond markets, the near-term channel is issuance: higher defense budgets increase gross supply, steepen curves when buyers demand more term premium, and widen spreads for weaker sovereigns if fiscal rules loosen to accommodate procurement.

Rubio’s Message Leaves A Hedging Premium In Place

U.S. Secretary of State Marco Rubio told delegates the United States wanted to work with Europe, using a warmer tone than last year, but his remarks avoided direct references to NATO and Russia’s war in Ukraine. That omission mattered because it left investors with an incentive to hedge tail risk rather than assume continuity in the transatlantic umbrella.

Washington’s position, as described by European officials in Munich, is that Europe should take primary responsibility for the continent’s conventional Defense while the United States maintains a nuclear umbrella and upholds NATO’s mutual defence pact. Markets treated that as a reallocation of burden, not a clean guarantee, increasing the likelihood that procurement decisions accelerate in 2026 even if headline tensions cool.

Missile And Munitions Plans Lift The Case For European Primes

Defense ministers from France, Germany, Italy, Poland and Sweden signed a letter of intent on February 12 to advance the European Long-range Strike Approach, aimed at developing “deep strike” missiles. The project is designed to fill a gap exposed by the war, where inventories of precision munitions and long-range systems have been strained by sustained high-tempo consumption.

The equity channel runs through order visibility. European primes and key suppliers, including ammunition, guidance electronics, radar, and propulsion, can see multi-year backlog expansion if governments lock in framework contracts instead of annual tenders. The same spending can tighten parts availability, raising short-term margins for scarce components but increasing working-capital needs across the supply chain in 2026.

Ukraine’s Numbers Keep The Spending Narrative Concrete

Ukrainian President Volodymyr Zelenskiy reinforced urgency with a stark count: Ukraine faced more than 6,000 drones and 150 missiles in the previous month. The scale matters for procurement planning because it implies that air defence interceptors, counter-drone systems, and radar networks must be ordered in bulk rather than as niche programs, lifting the probability of larger, faster contracts.

Those war-driven consumption rates also influence commodities and industrial inflation. Missile production is metal- and energy-intensive, and a broader European rearmament cycle can support demand for specialty steels, explosives precursors, and electronics, even if consumer demand softens.

Nuclear Deterrence Debate Adds A Long-Dated Risk Premium

German Chancellor Friedrich Merz said he had begun talks with Emmanuel Macron about a European nuclear deterrence concept, a signal that Europe is exploring options beyond conventional rearmament. France is the only European power with a fully independent nuclear deterrent, while Britain’s Trident system relies on U.S.-made and U.S.-maintained missiles, a dependency that markets increasingly treat as a strategic constraint.

For investors, nuclear discussions are not a near-term spending line item on the scale of munitions, but they raise the geopolitical premium embedded in European assets. A higher strategic-risk premium can support the Swiss franc and gold during stress, while pushing European defense valuations higher if investors view deterrence as a durable political priority.

Projects Struggle When Industrial Politics Override Speed

Europe’s push is not frictionless. The FCAS fighter project involving France, Germany and Spain has been in limbo for months over workshare disputes, highlighting how national industrial priorities can delay complex programs. Separately, European Union debates over whether defense projects should be limited to EU companies or open to partners have created uncertainty for procurement rules.

France has pushed “buy European” provisions, while Germany and the Netherlands argue for a more open approach. This matters for markets because restrictive rules can raise costs and slow deliveries, increasing deficit pressure and reducing the near-term earnings benefit for listed contractors if contracts take longer to finalize.

Market Channels Extend From Stocks To FX, Rates, And Credit

Defense stocks are the first obvious beneficiaries, but the repricing extends across assets. Higher expected issuance can lift euro-area yields, while wider fiscal dispersion can pressure credit spreads for highly indebted sovereigns. In corporate credit, more assured defense cash flows can tighten spreads for prime contractors, but smaller suppliers may see spreads widen if they need to fund capacity expansion ahead of milestone payments.

In foreign exchange, a credible European rearmament path can support the euro over time if it boosts industrial investment and reduces perceived security dependence. The counterweight is near-term funding: if deficits expand quickly, FX hedging demand can rise and keep volatility elevated.

Base Case, Upside, Downside Scenarios With Clear Triggers

Base case: Europe follows the new 3.5% target path gradually, converting pledges into framework orders for missiles, air defence, and ammunition during 2026, while keeping procurement partly open to non-EU suppliers to speed delivery. The trigger is national budget drafts in spring 2026 that show sustained outlays rather than one-off supplements, which investors will watch for confirmation.

Upside scenario: leaders align on joint purchasing and accelerate consortia, turning projects like European Long-range Strike Approach into funded contracts within 6–9 months. Triggers include a rapid compromise on EU procurement rules and a resolution of the FCAS fighter project workshare dispute, supporting faster revenue conversion and stronger earnings momentum for contractors.

Downside scenario: industrial squabbles and fiscal constraints delay contracting, while U.S.-Europe relations deteriorate again, lifting risk premia without delivering near-term capabilities. Triggers include stalled parliamentary approvals, procurement rule fights that block cross-border orders, or renewed Arctic tension around Greenland that raises security risk while leaving capability gaps unresolved.