The EU’s lending arm, the European Investment Bank, has tripled a scheme to help fund the bloc’s defense industry to 3 billion euros ($3.43 billion) and signed a deal with Germany’s Deutsche Bank to start funnelling the money to the bloc’s military firms.
The EIB announced on Wednesday it would provide a 500 million-euro loan to the German lender which will then onlend the money to small and medium-sized firms throughout the EU’s security and defense supply chain.
It is the first time the EIB has provided so-called intermediated financing for the defense sector and is expected to announce similar deals with banks in France and other parts of the bloc in the coming weeks.
The triple-A rated EIB is prohibited from investing directly in weapons but it has started investing more broadly in the defense sector over the last year as part of Europe’s efforts to build up its security capabilities.
The bank’s President Nadia Calvino announced the plan at a summit in Brussels saying that strengthening Europe’s security and defense was now “central” to the bank’s mission and would help address “the urgent need for investment” in the sector.
The threefold increase in the EIB’s lending, which was initially approved in December, reflected “exceptionally strong” interest by commercial banks across Europe to be involved in the defense ramp up efforts, the EIB added in a statement.
It comes with European nations under heavy pressure from US President Donald Trump to boost their defense spending.
Europe’s NATO members also feel less able to rely on the US security guarantee than in the past as they face off against a more aggressive Russia.
Germany laid out its own 500 billion-euro defense and infrastructure spending drive earlier in the year and swathes of other nations are signalling increased plans too.
Share prices of major European weapons firms have soared in response, but many smaller firms remain constrained by a lack of financing.
Deutsche Bank’s Chief Executive Christian Sewing said it was affecting hundreds of smaller firms that supply crucial parts.
The bank has formed an internal group spanning a range of departments to work on defense lending.
“SMEs (small and medium sized enterprises) are key links in the industry’s supply chain,” Sewing posted on LinkedIn.[Reuters]