German Budget Constraints Affect European Defence Stocks

European defence stocks declined after a German newspaper reported that no new applications for Ukraine military aid would be approved due to budget constraints. Shares in Rheinmetall and Hensoldt fell sharply. The German government refuted the report but acknowledged financial challenges and proposed using frozen Russian assets to aid Ukraine.

European defence stocks plummeted on Monday following a report by Frankfurter Allgemeine Sonntagszeitung (FAS) that Germany's finance ministry would halt new applications for Ukraine military aid due to budget constraints.

A German government spokesperson contested the FAS report, reaffirming Berlin's support for Ukraine 'as long as necessary' in a press conference. Shares in Rheinmetall, a major arms manufacturer, fell up to 5% before narrowing losses to 1.4% by midday. Stocks in Hensoldt, a radar producer for the IRIS-T air defence system, and Renk, a tank gearbox maker, also dropped significantly.

FAS cited a finance ministry letter stating that no new financial requests for Ukraine would be approved at Chancellor Olaf Scholz's behest. The letter urged adherence to budget limits, with current 2024 and 2025 aid allocations already overbooked. The report said that the German government's plan involves utilizing proceeds from frozen Russian assets for additional aid, pending coordination with G7 partners.

(With inputs from agencies.)