Europe Faces a Huge Bill to Defend Ukraine. Investors Are Thrilled.

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Europe Faces a Huge Bill to Defend Ukraine. Investors Are Thrilled.

European defense stocks

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after the region’s leaders vowed to take on “the heavy lifting” of defending Ukraine from Russia. The rally comes as the three-year-old war appears set to move into a new stage after an Oval Office blowup on Friday put President Volodymyr Zelensky of Ukraine on the outs with President Trump.

Shares in Europe’s defense giants — including the British defense contractor BAE Systems, the ******* arms manufacturer Rheinmetall and the Italian aerospace and defense specialist Leonardo — hit record highs on Monday. The sector’s surge has helped pushed the Stoxx Europe 600, a benchmark once dominated by luxury stocks, to new heights as well.

But behind the investor enthusiasm lies the question: Can Europe, facing high debt loads, chronically low growth and looming tariffs imposed by Trump, afford more military spending?

Ending the Russia-Ukraine war carries a high cost. Prime Minister Keir Starmer of Britain rolled out a four-point plan over the weekend at a gathering of European leaders and Mr. Zelensky.

Mr. Starmer’s proposal includes an Anglo-French “coalition of the willing” to defend any eventual deal for Ukraine, which could mean “

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.” Britain also

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($2.86 billion) to Ukraine to help bolster its military forces.

Even before the summit, however, credit agencies had warned about Europe’s finances. For example, increasing the military spending of NATO members to 3 percent of their G.D.P. — which is still short of the 5 percent that Mr. Trump wants — could force European governments to make unpopular spending cuts that weaken social safety nets,

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.

Other political options include loosening fiscal rules to allow for greater defense spending, rerouting unspent

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to military buildup and raising taxes.

Borrowing would carry a hefty cost, too. Yields on European bonds

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, a sign that investors were becoming worried about potential growth in public spending at a time when the region’s economy is slowing and its competitiveness is faltering.

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on whether such commitments could muddle the European Central Bank’s plans to cut interest rates; the central bank meets later this week.

The stakes are high. Failure to help Ukraine could eventually push European nations into accepting a deal that favors President Vladimir Putin of Russia. That could test the bloc’s cohesion, analysts say — but might be welcomed by those interested in seeing a divided Europe.

“Trump, Putin (and possibly Elon Musk?) all seem to dislike the European Union,” Holger Schmieding, an economist at the ******* bank Berenberg, wrote in a research note on Monday. “They would prefer to deal one-by-one with a panoply of minnows and middling countries than with a union that represents the second biggest market in the world.”

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