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Germany Flirts With Financial Nationalism

Ferdinando Giugliano

(Bloomberg Opinion) -- The abandoned merger between Deutsche Bank AG and Commerzbank AG is forcing the two lenders to reconsider their future strategies. Commerzbank, in particular, might be a tempting target for rivals across the continent who want to build their presence in Germany.

If there were a suitable offer, the German government – which owns 15.5 percent of Commerzbank – should be prepared to let the lender go. Berlin has been a strong proponent of the “banking union,” which is aimed at creating a unified credit market across the euro zone. Raising barriers against a foreign takeover for partisan reasons would be a hypocritical volte-face.

The pursuit of Commerzbank is for now pure speculation. Italy’s UniCredit SpA and ING Groep NV of the Netherlands are lining up advisers to explore a potential takeover of the German lender, according to Bloomberg News. Formidable obstacles remain, though.

Jean Pierre Mustier, UniCredit’s chief executive, says there are still too many hurdles to European banking consolidation. He has a point. The euro zone has a single system of banking supervision managed by the European Central Bank and a single rule book to deal with financial crises. But it lacks a common deposit insurance scheme to protect bank customers across the bloc, a pretty glaring omission for a claimed banking union. Moreover, national regulators and supervisors still wield a lot of power when it comes to defending their countries’ financial systems.

For these reasons, the euro area is yet to see the first significant cross-border merger since the banking union was established at the end of 2014. Of course, such combinations should only happen if they make sense – above all to the lenders themselves and then to their watchdogs. Nevertheless, more transnational firms would help spread financial risk across the euro zone and help cut the incestuous ties between national governments, supervisors and domestic lenders.

Unfortunately, any foreign lender interested in Commerzbank may face a bigger stumbling block than the economics of a deal. Berlin has been flirting with corporate nationalism and there’s a real risk of this new doctrine gaining traction in the country.

Olaf Scholz, Germany’s finance minister, was a key sponsor of the failed Commerzbank-Deutsche merger because he hoped it would create a “national champion” in banking. After the deal’s collapse, there might be a preference to keep Commerzbank in domestic hands. Scholz is now saying that Germany needs “locally-based” lenders.

Trade unions would be a powerful force against a cross-border deal too. The Deutsche-Commerzbank tie-up faced strong resistance from worker groups after it became clear that the two banks would have slashed tens of thousands of jobs. Trade unionists have been openly hostile about UniCredit too. “A lot of blood will spill before we merge with the Italians,” Stefan Wittmann, a labor representative on the Commerzbank board, has said. He says he would support a foreign acquirer, as long as it moved its corporate headquarters to Germany. That’s not exactly putting out the welcome mat.

It’s wrong to judge a potential merger simply on the nationality of the bidder. While Italy’s populist rulers have spooked the financial markets, Mustier has proven himself an effective steward for UniCredit since taking the helm in 2016. Maybe there is a commercial argument against a deal: UniCredit is struggling to generate profits, like many of its European peers, in an era of low interest rates and sluggish growth. But Mustier has succeeded in raising billions of fresh equity to support his turnaround plan, and proceeded to slash the bank’s costs and mountain of bad loans. Simple chauvinism shouldn’t drive any merger decision.

A foreign acquisition of Commerzbank may or may not happen, but that should be for its managers and supervisors to decide. As the biggest shareholder in the firm, Berlin will have its say. If Germany still believes in the banking union project, it can’t veto deals just because it doesn’t like the colors of a suitor’s flag.

To contact the author of this story: Ferdinando Giugliano at fgiugliano@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.

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