(Bloomberg Opinion) — Italy looks more worried about averting a few job cuts at home than amplifying its economic strength in the wider world. It’s not alone among European Union members — and that’s a big problem for the bloc’s future competitiveness.
Prime Minister Giorgia Meloni plans to use special rules to protect branches and jobs in UniCredit SpA’s pursuit of a deal for Banco BPM SpA, Bloomberg News reported Saturday. Italy’s “Golden Power” was initially designed to address foreign investment in strategic industries, but its reach has been extended since 2012; in banking, it can be used to veto or impose conditions on any deal, even purely domestic ones.
So much for hopes that Europe could rise above national interests and allow consolidation in multiple industries to help it compete with the US and China. It’s just four months since Mario Draghi, former President of the European Central Bank, delivered his report on European Union competitiveness. Many leaders know its strategic aims make sense. But Meloni’s desire to meddle in a sensible domestic deal — and the jumpiness in Germany and Spain about potential transactions there — shows politicians can’t clear even the first hurdle to Europe’s goals.
Italy has past form on protecting bank staff in thwarting proposed solutions for Banca Monte dei Paschi di Siena SpA, but now it could also intervene in the fund management tie-up between domestic insurer Assicurazioni Generali SpA and France’s Natixis SA. The government wants to maintain Generali’s role as a major buyer of Italian government bonds. That’s an even clearer illustration of the national mindset at work within the EU — and the brick wall in front of Draghi’s proposals.
In Spain, the government is worked up over Banco Bilbao Vizcaya Argentaria SA’s bid for Banco de Sabadell SA. Spanish ministers can veto bank deals, but only after antitrust and other relevant regulators have ruled. In Germany, the government can wield only political pressure to influence takeovers — although politicians have campaigned hard to deter investors from backing UniCredit’s potential bid for Commerzbank AG.
Banking mergers in Europe could help solve the sector’s high cost and low return problem, which leave finance more vulnerable to downturns and less able to compete with foreign firms, especially US investment banks. Many EU states have resisted consolidation for years, in spite of growing calls from supervisors at the ECB and other regulators.
France, Spain, Italy and Germany all have many more bank branches for their populations than the UK does. Spain has made the most progress in modernizing since 2008, with the number of branches falling to 37 per 100,000 people from more than 100, according to ECB data. Italy has cut branches by nearly 40% to 34 per 100,000 people in that time; but that’s still many more than the UK, which has a ratio of 12.
There are good reasons to protect access to banking services in poorer or rural areas, and some might argue UK banks have pulled back too much. But Italy, Spain and Germany are simply fearful of political blowback from any job cuts at all, even in over-served urban areas. All three of the potential banking deals in these countries have limited geographical overlap between bidder and target — and UniCredit and BBVA have both said that closures and cuts aren’t big rationales for their plans in Italy and Spain.
Draghi’s September report envisaged major investments in security, telecoms and other industries, and eventually common European public funding to beef up the bloc’s role in the world. If the EU’s national capitals can’t even face a bit of rationalization at home in a sector that most needs it, the rest of the program doesn’t stand a chance.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.
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