Marco Buti: Europe’s defense spending is a move towards ‘strategic autonomy’ from the U.S.

The companies standing to gain the most? Fortune 500 Europe defense giants such as Airbus (No.41 in 2024), BAE Systems (No.140), Safran (No.152), Thales Group (No.194), Rolls Royce (No.205), Leonardo (No.246), and Rheinmetall (No.421)—as European leaders have expressed a clear intention to show a “European preference” in the new spending.

Europe is serious about increasing its “strategic autonomy” from the U.S., according to Marco Buti, a former director-general for economics and finance at the European Commission. “It’s about making sure we are in a reasonably good position compared to the [United States],” he said.

Building up a homegrown military-industrial sector also fits into a broader push from Europe to regain competitiveness and dynamism in its economy more broadly. For the past few decades, the bloc trailed both the U.S. and China in growth and innovation, and fell behind in everything from automotive to tech. 

“We have a European growth model which is basically not sustainable,” Buti, who headed the European Commission’s powerful Economic and Financial Department from 2008 to 2019, told me. “It is a growth model that has at the center, Germany, clearly. It is very much export-oriented, and it’s caught in the ‘middle technology’ trap,” meaning it applies, but does not develop, the latest technologies (e.g. German cars running on Google software).

Whether the push will succeed remains to be seen. But a rally has already started among the European Fortune 500 defense stocks. Rheinmetall, for instance, saw a 15-fold increase in its stock price since the Russian invasion in Ukraine, including a doubling since the beginning of the year. It is now more valuable than Volkswagen.

And the ripple effect has started as well. A European tech and AI entrepreneur I met in London last week, who did not want his name used given his existing contractual obligations, told me he’d not seen as much excitement in the European investor and start-up environment since the 1990s.

“It’s the playbook of the U.S. and Israel, basically,” he said, pointing to the other countries where defense spending led to an ecosystem of successful tech companies. As for Europe, he said, “I’m already seeing investors shift to defense, given Europe’s increase in military spending. And if I can find an elegant way to get out of my current company, I’ll start a defense start-up myself.” — Peter Vanham

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Contact CEO Daily via Diane Brady at diane.brady@fortune.com

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From the analysts

• Goldman Sachs on Germany’s spending boost and inflation: “We recently raised our Euro area GDP forecast by a cumulative 1% over the next three years, reflecting a materially looser fiscal stance in Germany and higher military spending across the region. Standard estimates of the Phillips curve suggest that an output gap upgrade of this size could push up medium-term inflation by 0.10-0.15pp. We see several reasons why any upward pressure on consumer prices will likely be more limited than this,” per Sven Jari Stehn et al.
• JPMorgan on the gender pay gap: “The gender pay gap in the US increased to 17.3% and has remained unchanged at 12.7% in Europe, with women still underrepresented in the highest paying fields,” per Joyce Chang.
• Wedbush on Nvidia’s “wow” factor: “Almost all of the major details of NVDA's announcement were indeed talked about in advance (new faster GPUs with Blackwell Ultra, Rubin, Rubin Ultra, and Feynman; CPO based switches with a shift towards SiPh, etc.) diminishing the “wow” factor. But we believe this dynamic is simply the new norm as NVDA's scale and the focus on its supply chain has simply minimized its ability to announce meaningful product surprises,” per Daniel Ives et al.
• Wedbush on Musk and Tesla: “The brutal violence being seen against Tesla's brand is unprecedented and ultimately Musk and Tesla have become a political symbol which has been a major overhang on the stock…This makes it even more important that Musk hand holds employees and investors through this very white knuckle period and [the live all-hands meeting] was the type of leadership Musk needed to show and he did that,” per Daniel Ives et al.

Around the watercooler