Shares in European defence companies have rallied in the last week after the U.S. told Europe's political leaders at a summit in Munich that they needed to increase military budgets, signalling a major change.
BAE Systems CEO Charles Woodburn said "paradigm shifts" in European security could drive significantly higher defence spending, and that it was already having "high level" conversations with governments.
Analysts at Deutsche Bank said on Monday that correcting 10 years of underspending by NATO members to reach the current 2% target would cost 800 billion euros ($833.6 billion). They cited spending by Britain's defence ministry to show that about 40% went on equipment in 2023.
Deutsche said the European defence sector had to increase its capacity if governments wanted to bolster deterrence and avoid stoking already high defence equipment inflation.
