Europe’s top financial official has delivered a sharp warning about the growing barriers that prevent the continent’s banks from merging and achieving global scale. EU Commissioner for Financial Services Maria Luís Albuquerque said that political and legal hurdles in member states such as Germany and Italy are blocking the emergence of European banking champions capable of competing with U.S. and Chinese giants. Her comments highlight a deepening frustration within Brussels over the slow progress of banking integration despite years of calls for reform.
Europe’s Urgent Need for Banking Scale
Albuquerque stressed that Europe’s banking system remains fragmented and regionally bound, limiting its competitiveness on the world stage. While U.S. banks such as JPMorgan Chase and Citigroup operate with trillions in assets and global reach, no European bank matches that scale.
She argued that the continent’s over-reliance on small and medium-sized lenders leaves it structurally disadvantaged. Without cross-border mergers, European banks struggle to spread costs, raise capital efficiently, or finance large-scale innovation. According to European Central Bank (ECB) data, most lenders still operate primarily within national borders, with cross-border market share below 15 per cent.
Economists note that scale matters for both efficiency and financial stability. Larger banks can invest more in digital infrastructure, absorb shocks better, and finance strategic transitions like the shift to green energy. Albuquerque’s concern is that without consolidation, Europe risks falling permanently behind in financial competitiveness.
Germany’s Protectionism and the UniCredit–Commerzbank Deadlock
The commissioner’s comments come after the latest clash between Germany and Italy over UniCredit’s attempt to acquire Commerzbank. UniCredit quietly built a stake of nearly 30 per cent in the German lender earlier this year, but the move provoked strong political resistance in Berlin.
German lawmakers and unions voiced fears about foreign ownership and potential job losses. The government hinted that allowing an Italian bank to control one of Germany’s oldest institutions could endanger “national economic interests.” The backlash effectively froze the bid, despite both banks struggling with thin margins and rising capital costs.
Analysts say Germany’s stance reflects a broader pattern of banking nationalism. Domestic regulators remain cautious about ceding control to foreign players, arguing that national champions are essential for lending to small and mid-sized firms—the backbone of the German economy. Yet this inward-looking approach has stalled efforts to create pan-European lenders with the scale to rival American and Asian counterparts.
Italy’s “Golden Power” and Brussels’ Frustration
Italy has drawn similar criticism for using its “golden power” laws to block or condition foreign takeovers in the banking and energy sectors. These rules, designed to protect national interests, allow the government to veto deals involving strategic assets.
Albuquerque warned that such interventions may violate EU principles on free capital movement and single-market competition. During her meetings in Rome with central bank governor Fabio Panetta and economy minister Giancarlo Giorgetti, she reiterated that merger reviews of large financial institutions should be handled at the European, not national, level.
Brussels is preparing to challenge Italy’s application of the golden power rules, arguing that they distort market competition. If Rome refuses to amend its legislation, the European Commission could launch an infringement procedure. Sources suggest that discussions are under way to avoid a legal showdown by negotiating specific amendments before the November deadline.
Despite a decade of policy initiatives—including the banking union and single-supervisory mechanism—true integration has remained elusive. One reason is that Europe’s banking markets are deeply tied to national legal systems, making mergers complicated and risky.
Each country maintains different insolvency laws, tax codes, and deposit-insurance schemes. As a result, potential cross-border deals face steep compliance costs and operational uncertainty. Banks also face restrictions on moving capital and liquidity between subsidiaries in different countries, which undermines the very efficiency consolidation seeks to achieve.
Furthermore, political reluctance continues to dominate decision-making. Governments worry that cross-border mergers could shift control over domestic credit flows or lead to job losses. In practice, these national interests often outweigh broader European priorities, resulting in a cycle of partial reforms and persistent fragmentation.
Economic Risks of Inaction
Experts warn that Europe’s fragmented banking landscape weakens its ability to respond to economic shocks. During crises, such as the pandemic or the energy-price surge, fragmented banks were less able to redistribute liquidity across borders, increasing regional imbalances.
Smaller banks also face higher funding costs and slower digital transformation. Without scale, they struggle to invest in artificial intelligence, cybersecurity, and compliance systems demanded by modern finance. That leaves them vulnerable to non-European fintechs and U.S. capital markets, which can move faster and cheaper.
Albuquerque argued that this lack of integration ultimately undermines Europe’s economic sovereignty. The inability to mobilize capital efficiently limits the EU’s capacity to finance large-scale industrial projects or respond collectively to global financial disruptions.
The commissioner’s remarks suggest that Brussels is preparing to move from persuasion to enforcement. Officials in the European Commission’s financial-services division have hinted that infringement procedures could soon be launched against member states that misuse national security clauses to obstruct bank mergers.
Such action would mark a turning point. Until now, the Commission has relied mostly on dialogue and technical consultation. But growing impatience in Brussels—combined with pressure from the ECB—means that governments may soon face direct legal and political consequences for blocking mergers.
At the same time, policymakers are exploring ways to strengthen the EU’s banking union by harmonizing insolvency laws and creating a unified deposit-insurance system. These steps, while politically difficult, are seen as prerequisites for cross-border consolidation to succeed.
Toward a More Competitive Banking Future
Albuquerque’s comments reflect a broader strategic goal: building “European champions” that can compete on global terms. Without large, integrated banks, Europe risks depending on foreign financial institutions to fund its innovation and transition goals.
Her warning also aligns with the ECB’s view that consolidation is essential to reduce overcapacity and improve profitability in the sector. The central bank estimates that the euro-area banking market remains overcrowded, with hundreds of under-performing institutions struggling with low returns on equity.
While resistance in Germany and Italy underscores the political complexity of the issue, the direction of policy appears clear. Brussels wants to shift the balance of power from national governments to the European level in regulating major financial transactions.
If successful, such a shift could mark the most significant restructuring of Europe’s banking sector since the global financial crisis—one that replaces fragmented national champions with a few truly continental institutions capable of driving Europe’s economic future.
(Source:www.marketscreener.com)
Europe’s Urgent Need for Banking Scale
Albuquerque stressed that Europe’s banking system remains fragmented and regionally bound, limiting its competitiveness on the world stage. While U.S. banks such as JPMorgan Chase and Citigroup operate with trillions in assets and global reach, no European bank matches that scale.
She argued that the continent’s over-reliance on small and medium-sized lenders leaves it structurally disadvantaged. Without cross-border mergers, European banks struggle to spread costs, raise capital efficiently, or finance large-scale innovation. According to European Central Bank (ECB) data, most lenders still operate primarily within national borders, with cross-border market share below 15 per cent.
Economists note that scale matters for both efficiency and financial stability. Larger banks can invest more in digital infrastructure, absorb shocks better, and finance strategic transitions like the shift to green energy. Albuquerque’s concern is that without consolidation, Europe risks falling permanently behind in financial competitiveness.
Germany’s Protectionism and the UniCredit–Commerzbank Deadlock
The commissioner’s comments come after the latest clash between Germany and Italy over UniCredit’s attempt to acquire Commerzbank. UniCredit quietly built a stake of nearly 30 per cent in the German lender earlier this year, but the move provoked strong political resistance in Berlin.
German lawmakers and unions voiced fears about foreign ownership and potential job losses. The government hinted that allowing an Italian bank to control one of Germany’s oldest institutions could endanger “national economic interests.” The backlash effectively froze the bid, despite both banks struggling with thin margins and rising capital costs.
Analysts say Germany’s stance reflects a broader pattern of banking nationalism. Domestic regulators remain cautious about ceding control to foreign players, arguing that national champions are essential for lending to small and mid-sized firms—the backbone of the German economy. Yet this inward-looking approach has stalled efforts to create pan-European lenders with the scale to rival American and Asian counterparts.
Italy’s “Golden Power” and Brussels’ Frustration
Italy has drawn similar criticism for using its “golden power” laws to block or condition foreign takeovers in the banking and energy sectors. These rules, designed to protect national interests, allow the government to veto deals involving strategic assets.
Albuquerque warned that such interventions may violate EU principles on free capital movement and single-market competition. During her meetings in Rome with central bank governor Fabio Panetta and economy minister Giancarlo Giorgetti, she reiterated that merger reviews of large financial institutions should be handled at the European, not national, level.
Brussels is preparing to challenge Italy’s application of the golden power rules, arguing that they distort market competition. If Rome refuses to amend its legislation, the European Commission could launch an infringement procedure. Sources suggest that discussions are under way to avoid a legal showdown by negotiating specific amendments before the November deadline.
Despite a decade of policy initiatives—including the banking union and single-supervisory mechanism—true integration has remained elusive. One reason is that Europe’s banking markets are deeply tied to national legal systems, making mergers complicated and risky.
Each country maintains different insolvency laws, tax codes, and deposit-insurance schemes. As a result, potential cross-border deals face steep compliance costs and operational uncertainty. Banks also face restrictions on moving capital and liquidity between subsidiaries in different countries, which undermines the very efficiency consolidation seeks to achieve.
Furthermore, political reluctance continues to dominate decision-making. Governments worry that cross-border mergers could shift control over domestic credit flows or lead to job losses. In practice, these national interests often outweigh broader European priorities, resulting in a cycle of partial reforms and persistent fragmentation.
Economic Risks of Inaction
Experts warn that Europe’s fragmented banking landscape weakens its ability to respond to economic shocks. During crises, such as the pandemic or the energy-price surge, fragmented banks were less able to redistribute liquidity across borders, increasing regional imbalances.
Smaller banks also face higher funding costs and slower digital transformation. Without scale, they struggle to invest in artificial intelligence, cybersecurity, and compliance systems demanded by modern finance. That leaves them vulnerable to non-European fintechs and U.S. capital markets, which can move faster and cheaper.
Albuquerque argued that this lack of integration ultimately undermines Europe’s economic sovereignty. The inability to mobilize capital efficiently limits the EU’s capacity to finance large-scale industrial projects or respond collectively to global financial disruptions.
The commissioner’s remarks suggest that Brussels is preparing to move from persuasion to enforcement. Officials in the European Commission’s financial-services division have hinted that infringement procedures could soon be launched against member states that misuse national security clauses to obstruct bank mergers.
Such action would mark a turning point. Until now, the Commission has relied mostly on dialogue and technical consultation. But growing impatience in Brussels—combined with pressure from the ECB—means that governments may soon face direct legal and political consequences for blocking mergers.
At the same time, policymakers are exploring ways to strengthen the EU’s banking union by harmonizing insolvency laws and creating a unified deposit-insurance system. These steps, while politically difficult, are seen as prerequisites for cross-border consolidation to succeed.
Toward a More Competitive Banking Future
Albuquerque’s comments reflect a broader strategic goal: building “European champions” that can compete on global terms. Without large, integrated banks, Europe risks depending on foreign financial institutions to fund its innovation and transition goals.
Her warning also aligns with the ECB’s view that consolidation is essential to reduce overcapacity and improve profitability in the sector. The central bank estimates that the euro-area banking market remains overcrowded, with hundreds of under-performing institutions struggling with low returns on equity.
While resistance in Germany and Italy underscores the political complexity of the issue, the direction of policy appears clear. Brussels wants to shift the balance of power from national governments to the European level in regulating major financial transactions.
If successful, such a shift could mark the most significant restructuring of Europe’s banking sector since the global financial crisis—one that replaces fragmented national champions with a few truly continental institutions capable of driving Europe’s economic future.
(Source:www.marketscreener.com)
