A banking raid in Europe kicks up an unseemly nationalist defence

Move from one European Union country to another and most of your stuff will continue to work quite well. A car bought in Poland will still be considered roadworthy in Portugal, thanks to a single set of regulations (though new plates and insurance will in time be needed). Much the same appliances are sold in Sweden as in Greece, given standardised plugs and voltages. With a little fiddling, a Spotify subscription can be made to work too. But using a bank account opened in one EU country while living in another is surprisingly troublesome, even if both use the euro. In theory Europeans, like their American cousins, live in one large single market, free to contract services from business based anywhere in the bloc. In practice payment systems sometimes accept only cards issued by local banks—and good luck getting your Finnish bank to fund a Spanish mortgage. Finance is where the European ideal of a seamless union often falls shortest.

The limits of the European single market were sharply exposed this month as UniCredit, an Italian bank, has made moves to take over Commerzbank, a German rival. A proposed transaction that should have been of interest only to finance wonks—UniCredit and Commerzbank are the EU’s 10th- and 17th-biggest lenders, respectively—devolved into an ugly nationalist mêlée. Olaf Scholz, the German chancellor, took time out of his geopolitical agenda at United Nations meetings in New York to thunder against “hostile” Italian bankers on the prowl. Just two weeks ago the EU released a much-hyped report by Mario Draghi, a former Italian prime minister, proposing to juice economic growth in Europe by deepening its single market. A resounding nein has put paid to his plans before most people were done reading its 400 pages.

European chauvinism has long had a way of derailing businessmen’s best-laid takeover plans. In 2005 France fended off a bid for Danone, a yogurt-maker, on the grounds that it was strategically vital. But that would-be buyer was American. Surely takeovers by firms from other EU countries should be treated more sympathetically, the better to build European champions with the critical mass to compete globally? Apparently nicht. Because Commerzbank lends to Mittelstand firms and exporters, the German establishment has put it on an economic pedestal; some see it as a national treasure they would rather close down than hand over to grubby Italians. (This is rather amusing to finance aficionados—including your columnist, a former banking correspondent—who recall when the lender was dubbed “Comedybank”, thanks to its knack for losing money in a dazzling array of hare-brained lending decisions.) UniCredit’s stake was in part bought straight from the German authorities, who bailed out Commerzbank in 2008. In contrast UniCredit is well run and more profitable than its target, thanks in part to a German unit it already owns.

Whether the deal makes sense for either set of shareholders is beyond Charlemagne’s remit. Granted, the Italian bank needlessly irked German authorities by using clever financial tricks to conceal the size of its shareholding, which looks set to reach 21%, nearly double the German government’s stake. But the vitriol deployed in Berlin to fend off the takeover makes a mockery of Germany’s pronouncements that it favours an EU “banking union” (and a related one for capital markets) of the sort Mr Draghi called for. Its visceral response reeks of economic nationalism. To paraphrase: Italians cannot run their own economy; why should we entrust them with one of our banks? Italy, in turn, supports the deal—so long as the combined entity remains based on home soil.

“What it comes down to is: do we have 27 national banking systems, or do we have one?” asks Nicolas Véron of Bruegel, a think-tank in Brussels. Like modern nationalist movements, he points out, European banks came of age in the 19th and early 20th centuries, providing a balance-sheet to finance war, empire and whatever else the state needed funding. To this day, politicians like to keep big banks close. UniCredit’s chairman is a former Italian finance minister, Commerzbank’s an erstwhile head of the German central bank. French lenders are typically chaired by former officials whose key assets are their acquaintances in the halls of power, not their ability to gauge a client’s creditworthiness.

UniComedy

Close ties between banks and the state turbocharged the euro-zone crisis that followed the financial miasma of 2007. Banks tottered in part because they held debt issued by their home governments, which became distressed as governments in turn needed to rescue banks, and so on. Rejigging the system so that banks were now part of a single EU-wide system, beyond the clutches of “their” governments, was designed to break that doom loop, as well as matching a wider pool of savings to a broader set of potential borrowers. Much—though not all—of the required plumbing for this banking union is in place, notably the supervision of large lenders directly by the European Central Bank since 2014. But the proof of its existence lies in part in whether cross-border deals happen. So far they have been notable for their absence. The upshot is that European banks are small and do less lending than they should. Worse, when carrying out complex financial operations large EU firms call in Wall Street mastodons like JPMorgan—as the German government did to sell its Commerzbank stake.

One of the German arguments for foiling Der Italian job is that in a crisis, banks tend to retreat to their home market—ie that Italian authorities would force UniCredit to starve German borrowers. If that is true, the banking union can already be declared a failure, and should be replaced forthwith. If it is not, as seems more likely, politicians should realise that their national interest is best served when European solutions are allowed to work. Not just in theory, but in practice, too. ■

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