Italy’s bank employment defense is an obstacle for the entire EU

(Bloomberg Opinion) — Italy seems more worried about avoiding some layoffs at home than it is about expanding its economic power in the wider world. This is not just for European Union member states. And it is a big problem for the future competitiveness of the European Union.

Prime Minister Giorgia Meloni plans to apply special rules to protect branches and jobs as UniCredit pursues a deal with Banco BPM, Bloomberg News reported on Saturday. That’s what it means. Italy’s “Golden Power” was initially designed to deal with foreign investment in strategic industries, but its scope has been expanded since 2012. In the banking industry, it can be used to veto or impose conditions on any transaction, even a purely domestic transaction.

So much for the hope that Europe will go beyond its national interests and enable the integration of multiple industries to help compete with the United States and China. It has been just four months since former European Central Bank President Mario Draghi published his report on the competitiveness of the European Union. Many leaders know that their strategic goals make sense. But Mr. Meloni’s desire to intervene in a sensible domestic deal, and Germany and Spain’s panic about the possibility of a deal there, means politicians are unable to clear even the first hurdle to European goals. It shows.

Italy has previously protected bankers to block the proposed settlement of Banca Monte dei Paschi di Siena SpA, but now it will protect domestic insurers Assicrazioni Generali SpA and France’s Natixis SA. There is also a possibility that it will intervene in the fund management alliance between the two parties. The government wants to maintain Generali’s role as a major buyer of Italian government bonds. This further illustrates the mindset of people working within the EU and the brick wall that stands in the way of Mr Draghi’s proposals.

In Spain, the government is in deep debate over Bilbao Vizcaya Argentaria’s bid for Banco Sabadell. Spain’s ministers can veto bank transactions, but only if antitrust or other relevant regulators rule. In Germany, political pressure is the only thing the government can use to influence a takeover, but politicians are trying hard to prevent investors from backing UniCredit’s potential takeover of Commerzbank. We are developing a campaign.

European bank mergers could help solve the sector’s high-cost, low-profit problems that make the sector more vulnerable to recessions and less competitive with foreign companies, especially US investment banks. Many EU member states have resisted integration for many years, despite increasing demands from the ECB and other regulatory authorities.

France, Spain, Italy and Germany all have far more bank branches per capita than the UK. Spain is the most modernized country since 2008, with the number of branches per 100,000 people dropping from more than 100 to 37, according to ECB data. Italy has reduced its branch count by nearly 40% during that time, to 34 branches per 100,000 people. However, this is much higher than the UK ratio of 12.

There are good reasons to protect access to banking services in poor and rural areas, and some may argue that British banks are going too far. But Italy, Spain and Germany simply fear the political fallout from cuts, even in overserved urban areas. All three potential banking deals in these countries have limited geographic overlap between bidders and targets, with UniCredit and BBVA both saying the closure or reduction of plans in Italy and Spain is a significant rationale. It states that it should not.

Draghi’s September report called for major investments in security, communications and other industries, and ultimately a common European public fund, to strengthen the EU’s role in the world. It was expected. If EU capitals fail to face some rationalization in the sectors that need it most, the rest of the program will stand no chance.

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Paul J. Davis 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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