The European Commission has accused member states of blocking cross-border banking mergers that would allow European lenders to compete with their larger American rivals, in a direct rebuke to Germany's rejection of UniCredit's bid for Commerzbank earlier this year.
An EU executive report released Friday said unjustified national interventions are preventing European banks from reaching the scale needed to compete internationally. "This leads to an outcome where many banking groups in the EU are large relative to the size of their home economy, but not relative to the size of the EU or the banking union economy or international competitors," the report said.
The German Problem
The criticism follows Germany's June decision to reject an offer from Italy's UniCredit to acquire Commerzbank. UniCredit began its pursuit of Commerzbank in September 2024 but faced strong opposition from Berlin. While Germany officially cited the price offered by the Italian bank as the reason for its rejection, the government also made clear that Commerzbank is a key lender to German companies and should remain under German ownership.
A senior EU official didn't mince words. "It is a mistake from our point of view. If it's okay by the supervisor and the competition authority, cross-border mergers are good things," the official said, adding that U.S. banks were outcompeting European peers across many business lines in Europe. The official said the main driver of competitiveness isn't the rulebook. It's the absence of scale.
The episode highlights how hard it is to pull off cross-border banking deals in Europe, where mergers remain largely within national borders. European banks are left at a disadvantage to U.S. lenders that have benefited from economies of scale in a more integrated American market.
What Brussels Plans
The Commission will propose a range of measures in the first quarter of 2027. These include plans to crack down on EU members that breach EU rules limiting the circumstances under which they can intervene in proposed mergers. Other proposals would allow cross-border banking groups to meet capital and liquidity requirements more at the parent level, rather than the current system with additional requirements for subsidiaries.
Removing such constraints could release €230 billion of liquid assets, the report said. The EU will also replace its proposal from a decade ago to create a European deposit insurance scheme with a new plan to simply harmonise deposit insurance measures in the bloc.
Industry Reaction
The banking industry gave the report a mixed reception. French banking lobby FBF described the report as containing "several positive orientations" but said concrete measures on key issues were required, including better regulatory coordination and limits on country-specific rules.
Christian Sewing, Deutsche Bank CEO and president of the Association of German Banks, urged swift action. He called for adjustments to the lower limit on capital requirements known as the output floor, relief for trade finance and improvements on software investments, as well as urging a review of financial stability buffers.
Why This Matters:
European banks can't compete globally if national governments treat them as political assets rather than commercial enterprises. Germany's rejection of the UniCredit-Commerzbank merger wasn't about price or prudential concerns — it was about keeping a German bank German. That's exactly the kind of economic nationalism that leaves Europe fragmented and uncompetitive. U.S. banks operate in a single market of 330 million people. European banks face 27 different regulatory regimes and political vetoes. The Commission's proposals would remove some barriers, potentially freeing up €230 billion in capital. But without enforcement against member states that block mergers for political reasons, European banking will remain a collection of national champions too small to matter on the world stage. Brussels can write all the reports it wants. The question is whether it has the will to challenge Berlin when it breaks the rules.