The European Commission is moving to dismantle national barriers for its banks, aiming to help them scale up and compete globally. This push for capital's free movement stands in stark contrast to the ever-increasing obstacles faced by people seeking safety and opportunity within the same bloc. An EU executive report, released on Friday, stated internal barriers prevent EU banks from expanding, leaving them at a disadvantage to larger U.S. lenders.
EU mergers, the report noted, remain largely within national borders. This outcome means many banking groups in the EU are large relative to their home economy, but not compared to the EU or international competitors. Unjustified national interventions in cross-border bank mergers, the report argued, prevent banks from acquiring critical size at the EU level.
Capital's Unfettered Flow
Germany's rejection in June of an offer from Italy's UniCredit to take over Commerzbank highlighted these difficulties. UniCredit began its pursuit of Commerzbank in the second year prior, facing strong opposition. While Germany officially cited the price offered by the Italian bank, the government also made clear that Commerzbank is a key lender to German companies and should remain under German ownership. A senior EU official called this rejection "a mistake from our point of view." The official added that if approved by the supervisor and competition authority, cross-border mergers are beneficial. U.S. banks, the official noted, were outcompeting European peers across many business lines in Europe, with the main driver of competitiveness being "the absence of scale."
The EU executive will propose a range of measures in the first quarter of next year. These plans include cracking down on EU members that breach EU rules limiting their intervention 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 ($263.1 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 simplify deposit insurance measures in the bloc.
The Cost of Economic Integration
The banking industry offered a mixed reception to the report. The French banking lobby FBF described the report as containing "several positive orientations" but called for concrete measures on key issues, 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, relief for trade finance, improvements on software investments, and a review of financial stability buffers. This drive for financial consolidation and the removal of economic borders for capital stands in stark contrast to the EU's relentless efforts to fortify its external borders, criminalising human movement while facilitating the unfettered flow of finance.