European Investment Bank steps up multi-billion euro defence investments

(This June 24 story has been corrected to add currency in the headline and fix the name of a strategic institute in paragraph 9)

By John O'Donnell

BERLIN (Reuters) - The European Investment Bank (EIB) intends to ramp up its investments in European defence such as drones, satellites and cyber security, aiming to inject a further 6 billion euros ($6.4 billion) into the sector, its head told Reuters.

The plan underscores an increasing willingness in Europe to lend to defence companies after Russia's invasion of Ukraine changed an entrenched view that the region was safe from attack and could rely on the United States for protection.

"It's clear we need to reinforce Europe´s security and defence industry," EIB president Nadia Calvino told Reuters. "We have earmarked 8 billion euros to invest in this area, of which only 2 billion have been invested."

The move marks another modest attempt by Europe to keep up with Russia, which has put its entire economy on a war footing.

Calvino said a special team had been set up to invest the money. "We have established a dedicated office to accelerate the deployment of the 6 billion euros earmarked," she said.

"We are engaging actively with the European industry so it is to be expected that a pipeline of projects will be developed in the second part of the year," she said, highlighting border security, military mobility, de-mining and military hospitals.

The EIB, backed by countries in the region, has large financial clout, although it is treading carefully in backing defence. It has backed a satellite project in Poland and a German drone maker but steers clear of ammunition, for instance.

The EIB recently changed the rules underpinning its activity, allowing it to lend to, or indirectly invest in, defence firms.

Tim Lawrenson of the International Institute for Strategic Studies, said the move was symbolically important and would send a signal to other banks, which often took their lead from the EIB, that it was acceptable to back defence companies.

"Any European tank is made up of thousands of parts built by hundreds of small defence suppliers across Europe," he said. "These companies have struggled to borrow and stand to benefit most."

"Of course 8 billion euros is small when compared with 2024 European defence spending of $476 billion, still less the $968 billion U.S. spend," he said.

The change will do little to address how Russian arms production is dwarfing that of Ukraine.

"Ukraine's state budget for defence is 10 billion euros," said Herman Smetanin, CEO of JSC UDI, Ukraine's state-owned weapon maker. "Russia is spending ten times as much. It's hard to fight a war with such an imbalance."

The European Union, which with other Western allies wants to contain Russian advances and repel an increasingly assertive rival, launched an initiative in March 2023 to deliver one million artillery shells to Ukraine within 12 months.

But it delivered little more than half that amount by the deadline.

($1 = 0.9324 euros)

(Reporting by John O'Donnell; Editing by Mark Potter)