There is something deeply therapeutic about watching the European Union grapple with its own dogmas.
For decades we have been told, in no uncertain terms, that the single market is sacrosanct, that the free movement of capital is the engine of progress, and that ‘economic nationalism’ is a cultural aberration buried in the deepest recesses of continental populism.

Then along comes a major Italian bank that decides to take the Brussels and Frankfurt playbooks at face value, attempting to create a true cross-border banking powerhouse in the manufacturing heartland of the Eurozone.
And suddenly, that unshakeable faith in the free market dissolves like a Greek public budget in the days of the Troika.

The monumental clash between UniCredit and the German political and financial establishment over the Commerzbank affair is not merely the story of a complex takeover bid.
It is a geopolitical comedy of misunderstandings that lays bare the structural hypocrisy underpinning the EU’s architecture.

A theatre of the absurd where traditional roles are reversed and where the rhetoric of European integration crashes against the wall of national parochialism, protected by regulatory shields which to describe as anachronistic would be a generous compliment.

Orcel’s audacity and Berlin’s upside-down catechism

The operation orchestrated by UniCredit’s chief executive, Andrea Orcel, unfolded with the surgical precision and ruthlessness typical of international high finance: the sweeping up of shares on the market by taking advantage of the German state’s (reversible) divestment, strategic use of derivatives to lock in positions and, finally, the launch of a Public Exchange Offer (PEO) that pushed Piazza Gae Aulenti’s potential stake beyond the 54 per cent threshold of Commerzbank’s share capital.

On paper, a masterpiece of industrial logic: merging the Frankfurt-based bank with HypoVereinsbank ( HVB), UniCredit’s solid German subsidiary, to create a pan-European banking giant capable of holding its own against the US or Chinese behemoths.
This is precisely what the Draghi Report on competitiveness recommends doing before the curtain falls definitively on Europe.

Butthe German establishment , faced with the efficiency of the market, has reacted with the panic typical of those who discover that the rules written for others apply to themselves as well.
Germany – the land of austerity, of forcing privatisation on others and of lecturing others on economic modernity – has suddenly rediscovered the old-fashioned appeal of defensive statism.
Commerzbank’s management, led by Bettina Orlopp, has barricaded itself behind accusations of ‘aggression’, complaining about the lack of a commensurate financial reward, as if a market transaction were a trade union negotiation or a football transfer deal.

The political masterstroke, however, took place in Berlin. The German interministerial committee officially rejected the swap offer, raising the spectre of a loss of credit sovereignty over the Mittelstand, the famous fabric of German medium-sized enterprises which – incidentally – is already sinking under the weight of the energy crisis and a poorly managed transatlantic transition.
To top it all off, even the judiciary has stepped in: the Frankfurt Public Prosecutor’s Office has launched a preliminary investigation into ‘suspected market manipulation’ at the instigation of the German Works Council.
A show of force the likes of which has not been seen for some time, mobilised not against an offshore hedge fund, but against a Eurozone bank regulated by the European Central Bank itself.

Our own ‘golden powers’ and the Palazzo Chigi paradox

Whilst Berlin’s stance is rife with hypocrisy, Rome’s reaction is not without its own subtle schizophrenia.
The Italian government has been quick to cast itself as the defender of EU law. The Foreign Minister, Antonio Tajani, thundered in Brussels against the German vetoes, pointing out that the market is a single one and that national barriers run counter to the spirit of the treaties.
An impeccable position, were it not for the fact that it comes from a country that has turned the use (and abuse) of the ‘public interest shield’ into a veritable doctrine of economic policy.

This is where tragedy turns into farce.
How can one credibly criticise Berlin’s protectionism when Rome wields the ‘Golden Power’ with the same nonchalance with which it hands out tax breaks?
The most glaring – and intellectually embarrassing – example occurred precisely in the context of the domestic banking crisis, when the government made it clear that it intended to invoke special powers to freeze UniCredit’s plans regarding Banco BPM.

Let us be clear: we are talking about a possible merger between two Italian credit institutions, based in Italy, supervised in Italy and intended to finance Italian businesses. Yet, even in that case, market logic and consolidation have been subordinated to the protection of supposed local political balances, transforming a tool designed to defend strategic assets from the ambitions of Chinese or Russian sovereign wealth funds into a weapon of mass distraction to protect the fiefdoms of the national credit sector.

This tendency to use special powers as a de facto political veto is not good for the European market. It numbs it. It has a chilling effect on foreign investors, who are quite rightly asking themselves what is the point of investing in a Banking Union where every government reserves the right to walk away from the table if a merger between two banks does not sit well with the relevant local MPs.
The truth is that the Golden Power, created with noble intentions of national security, has been reduced to a substitute for the old state industrial policy: not knowing how to create value, governments simply prohibit others from reorganising it.

The breakdown in oversight and the Union that isn’t there

The most grotesque aspect of this affair is the European Central Bank’s isolation.
For years, heartfelt appeals have been coming from Frankfurt to overcome the fragmentation of the banking sector. The ECB is well aware that European banks, fragmented along national lines, have neither the profitability nor the critical mass to compete with the giants of Wall Street, who, being able to rely on a unified federal domestic market, continue to gobble up slices of the global market.

Well, the UniCredit-Commerzbank case shows thatthe Banking Union is a giant made of clay with feet of clay.

We have a single supervisor (the ECB Supervisory Board) and a single set of rules (the Single Rulebook), but we lack mutual political trust. As soon as capital really starts to move from south to north, crossing the old monetary borders, the conditioned reflexes of supposed financial sovereignty kick in.
Germany is quite happy for its goods to flood the rest of the continent, but it will not tolerate its citizens’ savings and credit being managed by a board of directors that meets in Milan.

The Geopolitics of Assisted Decline

European financial fragmentation translates directly into geopolitical weakness.
Without a unified capital market and without large cross-border banking conglomerates, Europe will never have the internal resources to finance its strategic autonomy, its common defence and its industrial restructuring.
It will remain a land to be conquered, a consumer market regulated by bureaucrats but lacking any true global players.

Should the UniCredit-Commerzbank deal fail under the weight of political and judicial vetoes from Berlin, the message sent to international markets will be unequivocal: the Eurozone is a quarrelsome block of flats, not an economic union.
A place where market rules apply only as long as the traditional hosts prevail, and where ‘banking sovereignty’ is the last bastion of a continent that would rather commit suicide in disarray than compete as a united front.