Germany flirts with financial nationalism

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, German government – which owns 15.5% of Commerzbank – should be prepared to let 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 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 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 colours of a suitor’s flag.
—Bloomberg

Ramesh Ponnuru is a Bloomberg Opinion columnist. He is a senior editor at National Review, visiting fellow at the American Enterprise Institute and contributor to CBS News