Italy’s UniCredit has set off a storm in Germany with its potential multibillion-euro merger bid for Frankfurt-based Commerzbank. The unexpected move has caught German authorities off guard and provoked a sharp response from Berlin, raising questions about the future of European integration and economic sovereignty.

UniCredit, headquartered in Milan, announced this week that it had increased its stake in Commerzbank to 21% and sought approval to raise it further to 29.9%. This follows its earlier acquisition of a 9% stake in Commerzbank earlier in the month, suggesting a concerted strategy to take control of one of Germany’s major banks.

While the move has sent waves through Germany’s financial and political sectors, the reaction has been swift and fierce. Market observers suggest the German government feels a sense of national embarrassment over the prospect of losing control of a key financial institution to a foreign entity, and this is reflected in their staunch opposition to the potential takeover.

Economic Opportunities or Job Loss Fears?

On the financial side, some see potential advantages in UniCredit’s plans. “If UniCredit can take Commerzbank and bring it to their level of efficiency, there’s tremendous upside in terms of increased profitability,” said Octavio Marenzi, CEO of consulting firm Opimas. Marenzi points to UniCredit’s track record of streamlining its operations in Italy and Germany, making it more competitive and profitable in recent years.

However, profitability is not the only concern for German officials, particularly Chancellor Olaf Scholz. Scholz, while acknowledging the potential financial benefits, is primarily worried about the social implications of a takeover, specifically the threat of mass layoffs. “Olaf Scholz is not an investor; he’s a politician, and he’s very concerned about the jobs side of things,” Marenzi explained. Scholz publicly condemned UniCredit’s decision, describing it as a “hostile” and “unfriendly” attack.

Commerzbank’s leadership has also been vocally opposed to the takeover. Uwe Tschaege, the bank’s deputy chair, declared, “We don’t want this,” while lambasting UniCredit’s CEO, Andrea Orcel, for his promises of cost savings. “I feel like vomiting when I hear his promises,” Tschaege said bluntly, referring to Orcel’s proposed changes.

Further deepening the concerns, Stefan Wittman, a member of Commerzbank’s supervisory board, warned that up to two-thirds of the jobs at Commerzbank could disappear if the takeover is successful. The bank has not commented on Wittman’s statement, but the potential loss of jobs is a major sticking point in the debate.

National Pride and Political Ramifications

Beyond the economic ramifications, the takeover is also being framed as a matter of national pride. Hostile takeovers, especially across national borders, are rare in the European banking sector. While such bids have occurred in other industries, like when Spain’s BBVA launched a takeover offer for Banco Sabadell earlier this year, the German reaction has been particularly fierce due to the symbolic nature of the country’s financial institutions.

The notion that an Italian bank could potentially run one of Germany’s largest and most influential lenders has sparked discomfort. “There might be a bit of a national embarrassment that the Italians are coming in and showing them how to run their banks,” Marenzi noted.

For Germany, the prospect of losing Commerzbank to UniCredit is not just about one bank but about broader concerns of economic sovereignty and control over key industries. Germany has long prided itself on the strength of its financial sector, and ceding control of a major institution to a foreign entity could be seen as a blow to that image.

Implications for European Integration

On a broader level, the dispute also touches on the future of European integration, particularly in the financial sector. Germany has historically been a proponent of the European banking union, a framework designed to improve regulation and supervision across EU banks. However, allowing a major German bank to be taken over by a foreign company may test the limits of this commitment.

Craig Coben, former global head of equity capital markets at Bank of America, pointed out that Germany could face challenges in justifying opposition to the takeover within the context of European unity. “Germany has signed up to the [EU’s] single market, it has signed up to the single currency, it has signed up to [the] banking union, and so it would be inconsistent with those principles to block the merger on the grounds of national interest,” Coben said.

Blocking the merger, therefore, could be seen as a violation of the very principles that Germany has supported in the European project. “What’s at stake here,” Coben added, “is the meaning of [the] banking union and the meaning of the European project.”

This challenge to European integration is further compounded by the fact that the banking union remains incomplete. Former European Central Bank President Mario Draghi highlighted this in a recent report, calling for hundreds of billions of euros in additional investment to meet key competitiveness goals. He pointed to the incomplete banking union as one of the major obstacles hindering the competitiveness of European banks, a sentiment echoed by many in the industry.

What’s Next for UniCredit and Commerzbank?

The situation remains fluid, with both sides digging in their heels. UniCredit has yet to announce its next steps, but it is clear that any takeover bid will face significant hurdles, both political and social. The German government, with strong backing from labor unions and Commerzbank leadership, is unlikely to relent without a fight.

At the same time, the broader European banking community is watching closely, as the outcome of this dispute could set a precedent for future cross-border takeovers in the sector. The tension between national interests and the broader European project is likely to play out in the weeks and months ahead as all sides weigh their next moves.

For now, UniCredit’s bid for Commerzbank has sparked not just a financial debate but a political and ideological one, with the future of European banking and integration hanging in the balance.

(Adapted from France24.com & CNBC.com)