A potential merger between a German and an Italian bank wouldn’t usually attract much attention beyond financial circles, but these aren’t ordinary times. The recent acquisition of a 21% stake in Germany’s Commerzbank by Italy’s UniCredit has sparked a political backlash, with even Chancellor Olaf Scholz calling it “an unfriendly attack.” This controversy has implications that extend well beyond the banking sectors of Italy and Germany.
The acquisition came shortly after Mario Draghi, former European Central Bank president, released a report addressing the EU’s waning competitiveness against the U.S. and China. Draghi warned of a “slow agony” for the EU without significant reforms, one of which is deeper financial integration. In this context, Germany’s resistance to the merger raises questions about its commitment to broader European reforms.
From a business standpoint, merging the two banks makes sense. UniCredit, Italy’s second-largest lender with a strong international presence, has successfully recovered from a period of financial instability following the global financial crisis. Commerzbank, a major lender to Germany’s Mittelstand, has struggled for years and is seen as a takeover target. UniCredit already owns HypoVereinsbank, a leading bank in Germany, which could lead to substantial cost savings from a merger.
From a European perspective, the merger is also appealing. Despite having a single currency, Europe still lacks a unified financial system. More than two decades after the euro’s launch, and despite efforts to establish a banking union, the financial sector remains fragmented along national lines, limiting cross-border lending. This fragmentation puts Europe at a disadvantage, preventing economies of scale and contributing to high costs and weak profitability. For comparison, U.S. bank JP Morgan’s market value exceeds that of the five largest EU banks combined.
So why the opposition in Germany? Some of it stems from the way UniCredit acquired its stake. In September, UniCredit thwarted the German government’s attempt to sell part of its post-crisis stake in Commerzbank by purchasing a 4.5% share, later increasing its holdings to 21%. It now seeks approval from the European Central Bank to boost its stake to 29.9%, setting the stage for a full takeover. UniCredit claims it acted transparently, but German officials view the move as unwelcome.
However, much of the resistance seems driven by protectionism. Unions warn of potential job losses, and Commerzbank’s chief financial officer, Bettina Orlopp, has raised concerns about losing customers and exposing German savers to risks tied to Italy’s debt, given UniCredit’s large holdings of Italian bonds. Politicians across Germany insist that Commerzbank should remain independent to ensure a domestic competitor to Deutsche Bank. The government has since ruled out selling more of its stake, effectively blocking a full takeover.
Yet, these concerns are debatable. Greater integration of eurozone banks could enhance efficiency and profitability, allowing for more lending, not less. Post-crisis reforms have made banks safer by requiring higher capital reserves and placing them under strict European Central Bank supervision. Furthermore, if Germany is truly concerned about risks to savers from cross-border banks, it should support a pan-European deposit insurance scheme, a key step toward completing the banking union. However, Berlin has consistently opposed this measure due to concerns over sharing financial risks.
The cost of not sharing risks is rising. As economic stagnation worsens, it becomes harder for governments to reduce debts, fueling populism and political division, which hampers efforts to address existential challenges like security threats and the climate crisis. Although Germany claims to back deeper European integration, it often yields to domestic interests, inadvertently harming its own economy, which is now at the center of Europe’s stagnation problem.
Germany’s response to UniCredit’s move is being watched closely across Europe. Draghi’s 400-page report outlined numerous steps to boost the EU’s competitiveness, many of which involve tough trade-offs. If Germany’s leaders falter on this first challenge, it casts doubt on Europe’s ability to implement broader reforms.
