With the DSEI global defense event taking place this week in London, an update on defense spending in Europe deserves an audience as capital flows may come into the market.
The first chart below shows total defense spending by European Union member states for the last 20 years. Since Russia’s 2014 annexation of Crimea, acceleration in European defense spending has basically gone from a steady decline to upward parabolic. Since the 2022 full-scale invasion, defense spending has been even more rampant.
The second chart is perhaps more significant than raw spending totals. It tracks EU member states meeting the 20% defense investment threshold – spending on R&D, development, and procurement.
The transformation is eye-opening: only 6-9 countries met this standard from 2005-2018, but by 2024, all 24 EU defense-spending members achieve this benchmark. This isn’t just about spending more money; it’s about spending smarter on capabilities that matter for modern warfare – precision munitions, cyber defense, space assets, and advanced platforms.
Defense stocks, particularly in Europe, continue on their trend upward. The STOXX Europe Aerospace & Defense ETF shot up 72.12% this year, with investors pouring in $1.1B starting in March 2025.
That’s when European governments started announcing their 2025 defense budgets, and the market basically said “yeah, this is for real.” The fund flows tell the whole story. Investors aren’t just betting on a short-term Ukraine bump. They’re positioning for what looks like a permanent shift in how Europe thinks about defense.
