This article was originally published by Rhoda Wilson at The Exposé.

European defense shares surged on Monday as investors bet on increased military spending following a summit of European leaders in London over the weekend. At the summit, European leaders agreed to boost defense budgets and draw up a Ukraine peace plan.

At the time, NATO Secretary General Mark Rutte and European Commission President Ursula von der Leyen called for increased defence spending, with Rutte stating that the alliance’s spending target would be “considerably more than 3%” of GDP.

UK Prime Minister Keir Starmer has been actively engaging with European leaders to discuss defence and security cooperation. On 2 February 2025, Starmer met with all 27 European Union (“EU”) leaders in Brussels to discuss European defence, marking the first such meeting since Brexit.

Starmer met with US President Donald Trump at the White House on 27 February.  The next day, on 28 February Ukrainian President Volodymyr Zelensky had a heated argument with President Trump in the Oval Office.  Corporate media seized on the moment.  The very public and widely publicised spat came days before a meeting of European leaders at Lancaster House, London, was due to take place.

After the Oval Office spat, Zelensky was welcomed in Europe, particularly in the UK, where he met with Starmer.  On Sunday, 2 March, Starmer hosted a summit in London where leaders from Ukraine, France, Germany and other countries, as well as representatives from NATO and the EU, gathered to discuss the situation in Ukraine and to intensify preparations for security guarantees.

“The summit rounds off a week of intense diplomacy for the Prime Minister, which has seen him raise UK defence spending and travel to Washington D.C. for productive talks with President Trump in support of UK and European security,” a UK government press release stated.

At the summit, the UK and France led efforts to salvage hopes of a peace deal in Ukraine and multiple leaders called for a boost to defence spending after the Trump administration refused to offer US security guarantees.

On Monday, the European defence sector experienced its biggest one-day rally since 2020, with shares in major defence companies such as BAE Systems, Qinetiq, and Babcock soaring, as investors bet on European governments increasing their defence.

BAE Systems shares climbed 15% in London, Rheinmetall jumped 18% in Frankfurt and Leonardo climbed 15% in Milan, while Qinetiq and Babcock shares gained 9% and 7% respectively, as the Stoxx 600 European Aerospace & Defence index has gained more than 30% since the start of 2025.

The Stoxx Europe Aerospace and Defence index had already hit record highs last month, driven by expectations that European governments will have to take on more responsibility for the continent’s security as the Trump administration embarks on a major realignment of US foreign policy, which is the biggest since the second world war.

According to T Rowe Price asset manager Tomasz Wieladek, the recent events have made it clear to European leaders that they need to raise defence spending significantly, leading to a surge in shares of European defence contractors such as Germany’s Rheinmetall, Sweden’s Saab, and Italy’s Leonardo.

The order books of these defence contractors have swelled as governments divert increasing funds to defence spending, and there are discussions about establishing a ‘Defence Bank’ that could raise hundreds of billions of euros in international bond markets to upgrade Europe’s military capabilities.

The proposed ‘Defence Bank’ would issue AAA-rated bonds backed by shareholder nations to close the “defence funding gap” across Europe, in response to the ongoing threat from Russia and concerns about the reliability of the US as an ally.

Meanwhile, the UK and French governments are leading an effort to negotiate a peace deal for Ukraine, which would initially include a one-month truce with Russia covering air, sea and infrastructure, as European countries seek to address the ongoing conflict and strengthen their defence capabilities.