Italy’s recent intervention against a significant banking merger has shed light on a rising wave of protectionism that undermines the EU’s vision for a cohesive financial landscape. The stalled bid by UniCredit to acquire Banco BPM last week was derailed by the Italian government, despite objections from Brussels, revealing the increasing dominance of national interests over European integration.
In a surprising turn, the ambitious Milan-based bank abandoned its controversial takeover attempt last Tuesday, citing the stringent conditions imposed by the government that threatened the deal’s profitability. This heavy-handed state intervention, alongside the open defiance of EU initiatives aimed at fostering banking consolidation across the bloc, presented an ideal scenario for the EU to assert its regulatory authority. However, national sentiments prevailed in the end.
“The huge bureaucracy in Brussels is still working within a framework that was maybe applicable 20 years ago — that world where free market liberalism was the zeitgeist,” said one well-informed European official.
Despite the European Commission’s legal objections, the Italian authorities remained steadfast in their opposition to UniCredit’s takeover. They contended that allowing a larger, international entity to acquire a local bank would jeopardize its essential role in providing credit in Lombardy, a region critical for government support. Additionally, officials hinted that the EU overstepped its bounds by intervening in national strategic priorities and accused it of applying outdated concepts to penalize countries for pursuing protectionist measures.
Protectionism versus nationalism in the EU
This protectionist victory comes at a time when the EU is striving to accelerate the unification of its banking and capital markets as part of a broader competitiveness initiative designed to present a unified front against the United States. Yet, the reality of national interests continues to thwart this ambition, with member states often disregarding EU directives.
The Commission’s sluggish response played a pivotal role in this instance. In May, the Italian government signaled its intention to obstruct UniCredit’s bid unless the bank expedited the exit from its extensive Russian operations and committed to maintaining specific lending levels for the first five years following the merger.
However, the Commission delayed for two months before issuing its letter of objection, which accused Italy of breaching EU treaties and impeding the free movement of capital, just days before the bid was set to expire on July 23. This hesitation was exacerbated by the necessity for the Commission to secure approval from the often-divided group of 27 European commissioners, and by internal conflicts within Italy’s own securities regulator, Consob.
The implications of rising protectionism
As the Italian government showed little regard for the EU’s objections, it appeared ready to impose the same conditions on UniCredit, albeit with minor adjustments, following a court ruling that largely supported its position. Ultimately, UniCredit withdrew its bid right before the deadline.
A similar scenario unfolded in Spain earlier this year when Prime Minister Pedro Sánchez partially obstructed national lender BBVA’s attempts to acquire Sabadell, prioritizing political support in Catalonia. Meanwhile, Berlin is preparing for its own confrontation with UniCredit, which aims to take control of Commerzbank.
This situation underscores the tension between the EU’s objectives to cultivate homegrown banking giants and the immediate national priorities of its member states. In Italy, this has been framed as a critical battle between free-market liberalism and resurgent protectionism, with UniCredit, labeled as the “stateless bank,” representing the growing financialization of Italian banks under the EU’s competitive agenda.
Officials have expressed frustration that the EU’s calls for the creation of substantial banking entities clash with its own slow progress on policies like deposit insurance and banking safeguards, which are essential for protecting member states from the hazards of cross-border monopolies. Judith Arnal, a senior research fellow at CEPS, commented on the widening gap between the rhetoric at the EU level and the actions taken by individual member states during merger negotiations.
This episode highlights the irony of the EU pursuing a protectionist agenda through its focus on a robust industrial policy aimed at ensuring “strategic autonomy,” while simultaneously condemning national-level protectionism. This approach neglects the sovereign principles that have supported the tenure of its president, Ursula von der Leyen.
While the Commission has not ruled out further investigations into Italy’s actions, it is evident that the opportunity to intervene has now passed. At this juncture, local protectionism has triumphed over the EU’s expansive and often contradictory vision for economic integration.