European defence stocks fell on Monday, after the Frankfurter Allgemeine Sonntagszeitung (FAS) newspaper on Saturday said the German finance ministry would not approve additional applications for Ukraine military aid due to budget
constraints.
A German government spokesperson reiterated Berlin’s support for Ukraine for “as long as necessary” at a regular press conference on Monday, calling the FAS report “incorrect.”
Shares in weapons maker Rheinmetall were down 2% at 1000 GMT, the biggest losers in the German blue-chip index Dax. Hensoldt, a maker of radars for the IRIS-T air defence system and tank gearbox maker Renk were both down 4%.
European peers such as BAE Systems, Saab Ab , Thales and Leonardo fell between
1.6% and 6%.
No new requests for money for Ukraine will be approved at the request of Chancellor Olaf Scholz, the German media FAS newspaper reported, citing a finance ministry letter from Aug. 5.
In the letter obtained by Reuters on Monday, the German finance ministry says new measures are only allowed this and next year if the financing has already been secured.
“Please ensure that the upper limits are observed,” ends the letter addressed to Defence Minister Boris Pistorius and Foreign Minister Annalena Baerbock.
Around 8 billion euros ($8.8 billion) is already earmarked for Ukraine’s military in 2024, and the budgeted 4 billion euros for 2025 is already overbooked, according to the German media weekly. “The pot is empty,” FAS quoted a government source as saying.
The 2024 and 2025 budget plans have not changed, German government sources told Reuters. The planned financial aid for Ukraine would be halved to around 4 billion euros in 2025 because additional funds from the G7’s $50 billion loan plan should be available from November, the sources said.
The German government has said that instead of spending taxpayers’ money, it wants to use proceeds from frozen Russian assets for further Ukraine aid, in coordination with its Group of Seven (G7) partners.
Yields from the frozen Russian assets could be used for Ukraine aid from 2025, a finance ministry spokesperson said at the press conference, adding that the government is working on an international financing instrument for Ukraine.
A government spokesperson said the first profits from frozen assets can be paid out to Ukraine as soon as this year.
Rheinmetall’s spokesperson declined to comment on the budgetary discussions, adding that it will continue its partnership with Ukraine.
A spokesperson for Hensoldt said the FAS report was “blown out of proportion” and that the firm did not see any backlash from it for its business.
Budget negotiations between Germany’s three-party coalition were difficult and protracted as large spending requirements for climate, social measures and infrastructure clashed with constitutionally enshrined limits for new debt.
Last month, the leaders of the Social Democrats, the Greens and the Liberals agreed on a 481 billion euros draft budget and only on Friday reached a deal to narrow its deficit target.
With Reuters inputs
