Europe’s Governments Tried to Stop Cross-Border Bank Mergers. They Are Losing.

For two years, the most important question in European banking has not been whether the deals make financial sense. It has been whether national governments would allow them at all. That question now looks close to being answered, and not in the governments' favour.

Commerzbank confirmed on 6 August that it had begun takeover talks with UniCredit, a decisive shift after a campaign Berlin once characterised as an assault on national financial sovereignty. Chief executive Bettina Orlopp said the discussions had started in what she described as the genuine interest of both banks. The announcement landed alongside second-quarter results showing net profit up 94% year on year to €898 million, ahead of an analyst consensus near €845 million.

Days later came the more consequential signal. The European Central Bank is leaning toward approving UniCredit's takeover of Commerzbank, Bloomberg reported, citing a Reuters account of an internal document presented to the central bank's Supervisory Board. UniCredit is awaiting clearance to take ownership of roughly 18% of Commerzbank tendered during its earlier offer, which would lift its holding to just under half and hand it a likely voting majority at shareholder meetings — effective control without a full merger.

How Milan got here

The sequence matters, because it shows resistance failing in two jurisdictions at once.

UniCredit built its German position in stages. It acquired a 4.5% stake in a German government share sale in September 2024 which, combined with earlier open-market purchases, gave it a sudden 9% holding. German officials called the move a hostile attack. The ECB nonetheless approved an increase to 29.9% by March 2025, and in March 2026 UniCredit launched a formal voluntary exchange offer under German takeover law.

Berlin's position has softened without disappearing. The federal government still holds 12% of Commerzbank and has not tendered its shares. Chancellor Friedrich Merz has said publicly that Berlin would not block a merger in principle, while the finance ministry has criticised UniCredit's approach as aggressive and argued the outcome should be settled between the two banks. Hesse's state premier Boris Rhein has separately sought guarantees on headquarters and employment — the reliably difficult questions in any cross-border banking deal, given European labour protections make branch closures and headcount reduction slower than in the United States.

The Italian half of the story ran in the opposite direction and produced a harder lesson.

Rome won the battle and lost the argument

UniCredit's €10.1 billion all-share offer for Banco BPM, launched in November 2024, collided with a government that had its own plan for the sector — combining Monte dei Paschi di Siena with Banco BPM to create a third domestic banking pole.

In April 2025 Rome granted Golden Power clearance subject to conditions binding on the merged bank: a five-year floor on the loan-to-deposit ratio, restrictions on the Italian project finance portfolio, a sovereign bond commitment covering BPM's asset manager Anima SGR, and a requirement that UniCredit wind down its Russian operations within nine months.

The Lazio administrative court struck down two of those conditions but left the Russia exit and the Anima commitment standing. UniCredit abandoned the transaction in July 2025. Chief executive Andrea Orcel said the bank had been completely stuck since early April, unable to engage shareholders or run an orderly process with no clear deadline, and that the uncertainty had become a drag severe enough to freeze a €3.6 billion buyback. He later called the withdrawal difficult but absolutely right.

Rome stopped the deal. It also triggered an infringement procedure. The European Commission's preliminary opinion ran to 56 pages and argued the conditions lacked clear national security justification, overlapped with the ECB's exclusive prudential competence under the Single Supervisory Mechanism, and amounted to a disproportionate restriction on investment in breach of the free movement of capital and freedom of establishment. The Commission pointedly noted that UniCredit's largest foreign shareholder, BlackRock, held just 7.4%.

Italy then rewrote the law. Its January 2026 reform introduced a sequencing rule subordinating Golden Power review to prior Commission and ECB decisions, while elevating national economic and financial security to a recognised essential interest. Whether that genuinely resolves the Commission's objection or simply reframes it is contested among practitioners.

UniCredit's appeal to the Council of State remains live. Judgments there typically take one to two years, and the bank has framed the case as a matter of principle rather than an attempt to revive the BPM bid. A ruling against Italy could expose the state to substantial damages claims.

The financial logic never went away

Throughout, the constraint on Italian banking consolidation has been political rather than financial.

All five of Italy's largest lenders beat profit expectations in the first quarter of 2026, according to Visible Alpha data cited by S&P Global, driving an aggregate annual profit increase of 11.4% and aggregate revenue up 11.8% to €19.29 billion. UniCredit led with profit up almost 17% year on year to €3.17 billion, beating consensus by 17.4%. Banco BPM was the only major Italian bank to post a year-on-year profit contraction, down 9.2% to €463 million.

The pressure point is visible underneath those numbers. Net interest income fell sequentially across the sector — Banco BPM down 2.1%, Intesa Sanpaolo down 1.3%, UniCredit down 1.1% — which is precisely why banks flush with capital have turned to acquisitions to sustain earnings as the rate cycle turns.

Domestic Italian consolidation has meanwhile continued largely unimpeded. Monte dei Paschi launched a €13.3 billion bid for Mediobanca in January 2025, and Banco BPM completed a €1.6 billion acquisition of Anima Holding in April 2025. The obstacle has been specific to deals that cross a border or cut against a government's own restructuring plan.

What to watch

The ECB decision on UniCredit's tendered Commerzbank shares is the near-term event, and it would be the clearest signal yet that supervisory judgement outranks national preference in European banking.

Beyond that, two structural questions remain open, and both were flagged as unfinished business well before this month: the absence of a European deposit insurance scheme, and the lack of a common liquidity backstop should a cross-border merger go wrong. Until those exist, every deal of this kind will be negotiated partly in the language of national security, because that is the only leverage governments have left.