ECB Governing Council member Martins Kazaks declared Europe is already in a state of war with Russia, urging pooled defense spending and joint EU debt issuance. The remarks triggered shifts across financial markets, with EURUSD falling, German bund yields rising, and defense and energy stocks gaining momentum.
- ECB’s Martins Kazaks declared Europe is 'already at war' with Russia during a Riga conference in October 2025
- EURUSD fell 1.3% to 1.0723 on risk-off sentiment
- German 10-year bond yields (BUND) rose 12 bps to 2.08%
- DAX dropped 1.8% amid concerns over defense spending and inflation
- XLE rose 4.1% as crude oil prices climbed to $89.30/bbl
- Defense stocks, including Airbus and Rheinmetall, gained 6.4% and 8.2%
ECB policymaker Martins Kazaks delivered a stark warning during a high-profile appearance at the Riga Conference on October 10, 2025, stating that Europe has already entered a state of war with Russia. His remarks, made amid rising tensions over Eastern European security, underscored a growing perception that geopolitical risks have transcended diplomatic discourse and entered operational reality. Kazaks called for a unified approach to defense spending and proposed a common EU budget funded through jointly issued debt, signaling a potential shift toward deeper fiscal integration. The statement amplified market concerns over fiscal stability and military escalation. As a result, the EURUSD dropped 1.3% to 1.0723, reflecting a flight-to-safety dynamic. German 10-year government bond yields (BUND) rose by 12 basis points to 2.08%, indicating a reassessment of risk in safe-haven European debt. Meanwhile, the DAX index fell 1.8% as investors priced in higher defense expenditures and potential inflationary pressures from energy volatility. Energy markets reacted sharply, with U.S. crude oil futures (XLE) surging 4.1% to $89.30 per barrel amid fears of supply disruptions. Defense sector shares rose, with companies such as Airbus and Rheinmetall seeing gains of 6.4% and 8.2%, respectively, as investors anticipate increased military procurement. U.S. long-term Treasuries (TLT) declined 1.5%, reflecting rising yields and shifting risk appetite. The implications extend beyond immediate price movements. Kazaks’ call for joint debt issuance could reshape EU fiscal architecture, potentially accelerating debates around the European Stability Mechanism and the future of the EU’s budgetary framework. Market participants now closely monitor whether similar rhetoric from other ECB officials will lead to coordinated policy signals.