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German defense stocks drop as government debates future Ukraine support

Rheinmetall and other defense companies’ shares, which had been on a steep upward trend, are now falling significantly as the government debates future aid for Ukraine, as per Spiegel.
byYuri Zoria
19/08/2024
2 minute read
german defense stocks drop government debates future ukraine support production dm121 155mm artillery shells
Production of DM121 155mm artillery shells. Credit: Rheinmetall
German defense stocks drop as government debates future Ukraine support

German defense stocks experienced significant declines on 19 August as the government coalition debated future financial aid for Ukraine, according to Spiegel. The major arms manufacturer Rheinmetall’s shares dropped by up to 5% before recovering slightly to a 3% loss by midday. Bavarian arms producers, Renk and Hensoldt, also suffered losses of around 4% each in the afternoon after initially also falling sharply.

An August 17 report by Frankfurter Allgemeine Sonntagszeitung (FAS) claimed Germany had suspended new military aid to Ukraine due to budget constraints. Ukraine’s Foreign Ministry spokesman called this manipulative, noting the actual level of support would be decided after Germany’s budget approval in November.

The market downturn follows a period of substantial growth for these stocks, with Rheinmetall shares having risen by up to 28% over the previous two weeks, approaching record highs. The sudden reversal is attributed to uncertainty surrounding Germany’s continued military support for Ukraine.

At the center of the debate is a letter from Federal Finance Minister Christian Lindner to Defense Minister Boris Pistorius and Foreign Minister Annalena Baerbock.

In the letter, Lindner stressed that “new measures” could only be taken if funding is secured in the budget plans for the current and coming years. He further urged, “Please ensure that the ceilings are adhered to.”

The German government is reportedly exploring using interest generated from frozen Russian state assets as aid for Ukraine. The G7 countries agreed in principle to this strategy in June 2024. However, many questions remain unanswered regarding the implementation of the planned financial instrument.

Germany is the second-largest military donor to Ukraine after the United States. Earlier, Reuters reported that Germany’s draft 2025 budget halves its support for Ukraine to €4 billion, down from €8 billion in 2024.

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