BRUSSELS — Politicians might talk big about breaking down the national barriers that stop Europe competing with the U.S. and China, but everywhere you look they’re doing their best to keep the ones they think matter. Take the EU’s Banking Union project, which first saw the light 15 years ago when the eurozone debt crisis nearly took the financial system down along with the single currency. Regulators have been pleading for years to let a fragmented banking market consolidate and create the kind of continent-wide institutions that can mobilize the vast sums needed to revive a stagnant economy.  But national capitals continue to hobble any deal they see as a threat to local interests — so much so that the European Commission is now investigating Spain and Italy’s interference with big domestic banking mergers. It’s increasingly impatient with what it sees as unjustified attempts to block deals that antitrust regulators have already blessed. In Spain, the government of Socialist Pedro Sánchez has imposed new conditions on Banco Bilbao Vizcaya Argentaria’s €12 billion hostile takeover bid for Catalonia’s Banco Sabadell, an extra layer of scrutiny that is only used in exceptional cases. BBVA swallowed hard and said on Monday that it will proceed with the deal, even though the government won’t let it absorb Sabadell fully for at least three years.  That deal had already been approved by Spain’s national competition authority, while the Bank of Spain recommended the deal to the European Central Bank, which is the direct supervisor of both banks.   “There is no basis to stop an operation based on a discretionary decision by a member state government” when the takeover has been cleared by the competent authorities, Commission spokesperson Olof Gill said. For six months, the Commission has been having a back-and-forth with Madrid over the deal under a procedure called the EU Pilot — an informal dialogue between the EU and countries that can lead to formal infringement procedures. That process is ongoing. “Spanish rules allow for government intervention on general interest grounds, on mergers that have already been reviewed by the competition authority, but this is extremely rare,” Pedro Callol, a Spanish antitrust lawyer, told POLITICO. The only time it has used the power, he said, was in a deal between broadcasters Antena 3 and La Sexta in 2012. ROMAN INTRIGUES There were echoes of Madrid’s behavior in a similar case in Italy, where a bewilderingly complex and politicized struggle for control of the banking system is playing out. The government of Giorgia Meloni has saddled UniCredit’s bid for rival Banco BPM with so many conditions that UniCredit now says it makes no sense to proceed. Rome did so by invoking its “golden power,” which was originally designed to stop foreign takeovers from threatening national security. That move did not go unnoticed in Brussels, where officials opened two distinct probes into the matter, led respectively by the financial services and the competition directorates. It has also triggered an exchange under the EU Pilot, and the Commission “is now assessing the reply of Italian authorities.” Competition officials in Brussels cleared the deal with conditions on June 19, rejecting Rome’s request to hand the deal back to the national antitrust authority. Competition officials also sent Rome a set of questions on its “golden power,” a Commission spokesperson told POLITICO, explaining that only in “exceptional” circumstances can a government interfere with a Brussels merger decision. National interventions in mergers aiming to protect a “legitimate interest,” they said, should be “appropriate, proportionate and non-discriminatory.” The government of Giorgia Meloni has saddled UniCredit’s bid for rival Banco BPM with so many conditions that UniCredit now says it makes no sense to proceed. | Michael Nguyen/Getty Images There are broader concerns over Rome’s entanglements in the banking sector. Government officials have spoken privately of the need to build up a third force in Italian banking that would act as a counterweight to the dominant duo of UniCredit and Intesa Sanpaolo, which they hope would bolster credit access for the small firms and households that make up a sizable bulk of the ruling coalition’s electoral base. According to Rome insiders, the government wants to build this “third pole” around Banca Monte dei Paschi di Siena (MPS), which has been under effective government control since the last in a series of expensive bailouts in 2017. The Commission only approved that bailout on the condition that Rome reduce its influence over the bank as quickly as practicable. With the conditions having been fulfilled, MPS is now on the hunt for acquisitions — with the backing of the government, which is still its largest shareholder, owning an 11.7 percent stake. At first, Meloni’s government aimed to merge MPS with BPM, which bought a large stake in the Tuscan lender last year. When that was derailed by UniCredit, the government changed tack, supporting a surprise €12.5 billion bid by MPS for Milan-based investment bank Mediobanca. The target rejected the offer outright as having “no industrial rationale” and as being structured so as to create significant conflicts of interest at the shareholder level — an implicit complaint about the offer’s political dimensions.   Both the EU executive and Milan prosecutors are now reportedly probing Rome’s handling of its sale of the MPS stake last November amid suggestions that it favored investors close to the government. VESTED INTERESTS AND COMPETITIVENESS CONCERNS The Commission’s frustration is due in part to the notion that banking consolidation, and the broader completion of a single market for financial services, is urgently needed to boost the bloc’s overall competitiveness. EU financial services chief Maria Luís Albuquerque is taking every chance to emphasize that Europe needs bigger banks to compete with U.S. and Chinese rivals. Currently, JPMorgan alone is worth as much as the eurozone’s eight biggest banks put together. Any move to stop such consolidation must be “proportionate and based on legitimate public interests,” spokesperson Gill said. Rome’s three-party coalition may be keeping its cards close to its chest regarding its broader plans, but Spanish politicians haven’t even been trying to mask their motives. Jordi Turull, secretary-general of the Junts per Catalunya party that props up Pedro Sánchez’ minority government in Madrid, complained to TV3 that the Spanish National Commission of Markets and Competition and European authorities had only presented “technical reasons” for allowing BBVA to take over Sabadell. “Now is the time for politics,” he said, arguing that “there are enough reasons” for the government to get involved. Sánchez’ fragile minority government cannot pass legislation — nor a national budget — without the support of Catalan political parties that consider Sabadell’s independence a matter of regional pride. BBVA’s bid to take over the bank, which was founded in Barcelona over 100 years ago, has consistently faced broad political opposition in Catalonia. Separatist and unionist politicians have rallied around the bank, arguing the deal would reduce Sabadell’s presence in the region, particularly in already underserved rural area (they appear to have forgiven Sabadell’s rapid relocation of its domicile to the legal safety of Valencia when Catalonia pushed for independence back in 2017). GERMAN ROADBLOCKS Next in line for Commission scrutiny could be Germany, which is anything but keen for UniCredit to swallow Commerzbank, the country’s second-largest private sector bank. UniCredit CEO Andrea Orcel’s team received permission from the ECB in March to raise its stake to 29.9 percent. It currently holds 9.5 percent directly, and another 18.5 percent indirectly through derivatives, and has warned that converting those rights into physical shares still requires several other approvals, including from the German Federal Cartel Office. But the new government in Berlin hasn’t signaled any greater willingness to allow a takeover than the previous one under Olaf Scholz. Berlin is still Commerzbank’s biggest shareholder, with a stake of 12 percent, and Chancellor Friedrich Merz told reporters in Rome last month that he didn’t see any need to discuss the deal with his Italian counterparts as it was not in the works for now. Such roadblocks are giving Commerzbank the time to mount a vigorous defense. New CEO Bettina Orlopp announced a radical package of measures in February to improve profitability and get the bank’s market value up to a level where UniCredit would struggle to mount a full takeover. That package included some 3,300 job cuts in Germany — precisely the kind of thing that Commerzbank’s unions had been hoping to avoid when they lobbied the previous government to stop a takeover. UniCredit is still holding on to the option of launching a full takeover, but in March accepted that any such process is likely to last well beyond the end of this year. Aitor Hernández-Morales contributed to this report.

BERLIN — Germany’s BioNTech has signed a deal to acquire its former Covid-19 vaccine competitor CureVac for around $1.25 billion (€1.08 billion), the companies announced today. Both biotechs are developers of mRNA vaccine technology and were rivals in the race to produce a Covid-19 vaccine in the height of the pandemic. BioNTech joined forces with U.S. pharma Pfizer and continues to dominate the market with its updated Covid-19 shots. After U.S. President Donald Trump’s attempt to buy the company, CureVac failed to get its candidate approved and sold the rights to its Covid-19, flu and bird flu vaccine programs last year.  Both German companies have continued mRNA programs on so-called cancer vaccines. “We intend to bring together complementary capabilities and leverage technologies with the goal of advancing the development of innovative and transformative cancer treatments,” Uğur Şahin, BioNTech CEO, stated.  CureVac shareholders will get an exchanged BioNTech share for approximately $5.46. In total, the current shareholders will hold 4-6 percent of BioNTech. CureVac will be absorbed by BioNTech and the brand will no longer exist. Germany invested €300 million into CureVac during the pandemic and held 23 percent of its shares. While the government has sold some shares in recent years, it still remains a shareholder and has to accept the offer. The news lands as Europe hatches a plan to boost its bioeconomy with a forthcoming Biotech Act, which is expected to support the growth of smaller companies and smooth out the regulatory processes for innovative therapies.

ROME — Italy’s UniCredit said on Sunday it has built a stake of 4.1 percent in insurance and asset management giant Generali Group, adding another twist to a highly politicized battle over control of the country’s financial sector. The Milan-based bank said it also holds another 0.6 percent of Generali on behalf of clients and their related hedging activities. It said its holding is “a pure financial investment” that would not affect its balance sheet strength, and asserted that it has “no strategic interest in Generali.” However, its move adds an extra layer of complexity to an already confusing power struggle over Italy’s biggest banks and asset managers, in which the government of Giorgia Meloni appears to be pushing the creation of a “third pole” to rival UniCredit and Intesa Sanpaolo with the help of some sympathetic local billionaires. The government is keen to ensure that Generali, which last month agreed to combine its asset management business with that of France-based Natixis, keeps its appetite for Italian sovereign debt at a time when Rome needs to borrow nearly €1 billion a day. The Trieste-based conglomerate is the government’s largest private-sector creditor. Rome had initially pushed for an alliance between Banco BPM, a Milan-based lender, and Banca Monte dei Paschi di Siena (MPS), which the government is still in the process of privatizing after years of restructuring. That intention was frustrated last year when UniCredit made a formal offer for all of BPM. UniCredit said on Sunday that it remains committed to that deal, and to developing its relationship with Germany’s Commerzbank. Rome is now throwing its support behind a bid by MPS for Mediobanca, a Milan-based merchant bank that has historically catered to some of the country’s biggest business empires. Mediobanca is also Generali’s biggest shareholder, with a 13.1 percent stake. Italian media have reported that the Del Vecchio and Caltagirone families, which hold just under 10 percent and 7 percent of Generali, respectively, want to increase their influence at the Trieste-based insurer. A person familiar with the matter said that while the purchase of a stake by UniCredit was not an explicit attempt to exert leverage in the billionaires’ tussle over Generali, it will have an “interesting” effect at a coming board meeting. The same person noted that UniCredit had started snapping up Generali shares before MPS’s move on Mediobanca. People familiar with the matter told POLITICO that UniCredit had built its stake via derivatives, gaining economic exposure to Generali without crossing a threshold for mandatory disclosure. UniCredit declined to comment to POLITICO on that. Geoffrey Smith contributed reporting.

The United Kingdom’s competition authority cleared Vodafone’s £15 billion tie-up with telecom rival Three after the companies pledged to spend billions of pounds to scale up networks. Vodafone and Three, owned by Hutchison, will also need to cap some mobile tariffs for customers and give certain contractual terms to mobile virtual network operators who use its networks to offer competing services. These aim to resolve concerns that the deal, combining the third- and fourth-biggest U.K. mobile operators, risked increasing prices and harming smaller players. The approval marks a step change for the Competition and Markets Authority (CMA) by accepting companies’ promise to boost investment. It’s usually pushed for selling off parts of a business to resolve competition problems. The European Commission’s top merger official said last month that he was surprised the CMA would clear the Vodafone deal with such a commitment. Telecom companies have been pushing for regulators to soften a tough stance on deals after a 2016 veto for a previous U.K. telecoms deal. Mario Draghi’s recent report on making Europe more competitive suggested that officials take companies’ investment needs more seriously. Stuart McIntosh, chair of the CMA’s independent inquiry group, said that the conditions imposed on the deal mean “the merger is likely to boost competition in the UK mobile sector and should be allowed to proceed.” Vodafone said the deal was “a once-in-a-generation opportunity to transform the UK’s digital infrastructure.”

BRUSSELS — Convincing European Union lawmakers to back her as the bloc’s new climate and competition chief will be the easy part for Spain’s Teresa Ribera.  If confirmed in her post, though, climate expert Ribera will quickly discover that the competition leg of her vast portfolio is a major head-scratcher, in a world where the EU is trying to boost its productivity and relevance in the face of an increasingly tense geopolitical scene.  As the chief enforcer of state aid rules, Ribera will have the last word on how EU countries subsidize companies to ensure large, deep-pocketed nations don’t outspend their smaller neighbors. At the same time, she’ll oversee the Clean Industrial Deal, a major legislative initiative to seed the climate-friendly sectors of the future while helping existing companies cut carbon emissions and compete. Competition is a weak spot for the Spanish socialist, whose entire career has revolved around energy and environmental issues. It is also the policy area the EU is betting on to help unleash economic growth and subsidize the right investments. “It’s not clear to us how she’ll do it. There is a risk that there won’t be this independent watchdog, that the combination of competition with other policy issues jeopardizes the watchdog component of that role,” said an EU government official granted anonymity to speak freely.  Vincent Hurkens of the E3G think tank said she faces a “very complex” task to enable government aid as the economy emerges from the shocks of the pandemic and the Ukraine war while dealing with concerns that some countries can outspend others. “She has, on the one hand, to answer how she can guarantee that level playing field, but at the same time provide sufficient investment in a time where there doesn’t seem to be that much of an appetite to go for very ambitious new plans to secure additional public funding in the EU,” he said. “So that’s really for her to provide a vision on — how will you square that circle,” he said.  Damian Boeselager, a German Volt lawmaker, worries that the current European Commission emphasis on spending is wrong-headed. He said the EU should “start focusing on startups and scale-ups — and not [on] large state aid to large players in large EU member states such as Germany.” BIG TECH TENSIONS Donald Trump’s reelection as president of the United States has turned up the temperature for EU efforts to police (largely U.S.-based) Big Tech and multinational corporations’ megadeals. Trump vowed last month not to let the EU “take advantage of our companies,” saying Apple CEO Tim Cook had called him to complain about an EU antitrust fine and back-tax order. Apple may now be set to get the EU’s first fine for not complying with digital competition rules, Bloomberg reported. The European Commission has also raised the prospect of forcing Google to divest part of its advertising service as part of a probe likely to finish next year. “The victory of Donald Trump is closely linked to the support of Elon Musk and other Tech tycoons who explicitly said they want to avoid any kind of regulation,” German Green lawmaker Alexandra Geese told POLITICO in an email. This puts pressure on the Commission “to stand tall by our rules,” she said. It isn’t clear how Ribera will handle potential U.S. retaliation over decisions she might have to take to enforce EU rules against U.S. tech firms. Tech doesn’t seem to be a top priority for her, at least not the way it was for her predecessor, Margrethe Vestager. Geese and others previously highlighted how Ribera’s marching orders didn’t target how digital power has concentrated in the hands of a few companies, mostly from the U.S. This marks a stark contrast from 10 years of high-powered antitrust enforcement by Vestager, who made Silicon Valley take notice of Brussels bureaucrats with hefty fines, back-tax bills and deal vetos. “We are coming out of two mandates with Margrethe Vestager, who was really a driving force,” French Renew lawmaker Stéphanie Yon-Courtin told POLITICO. “And now I’m afraid it’s going to be an empty shell,” she said of the competition portfolio, pointing to the low prominence given so far to antitrust in what Ribera has been told to do and what she herself is committing to. POLICING DEALS AND FOREIGN GOVERNMENT AID Mergers feature prominently in the instructions Ribera got. She will be under pressure to reform how the EU checks and blocks deals, with Germany and France calling for rules to allow bigger airlines and telecom companies. Two high-level reports recently backed more telecom consolidation and scaled-up firms to make the European economy more efficient and resilient. But changing merger rules is easier said than done. Allowing bigger national champions could come to the detriment of smaller companies and consumers. “With a big push coming from telecom incumbents and major airlines to get bigger in European markets, can creating ‘European champions’ not end up in fact reducing innovation in the European market and therefore harming consumers?” asked Agustín Reyna of the consumer advocacy group BEUC. A specific call to police “killer acquisitions,” where big companies snap up innovative potential rivals, could also lead to friction with U.S. tech or pharma companies, which have attracted most recent EU enforcement efforts. Ribera could end up having to defend against accusations that the EU is taking a harsher line with U.S. deals to protect its own industry. Another legal weapon, the Foreign Subsidies Regulation, could also put her on a collision course with U.S. businesses. Although the tool was largely aimed at creating more checks for Chinese state subsidies, its broad scope has also netted many firms from friendly states. “U.S. companies and financial investors are required to go through a complex process to notify acquisitions, and this could get drawn into transatlantic trade spats,” warned Philippe Radinger, a consultant at FGS Global.  A crosscutting challenge for Ribera will be managing her time among so many priorities. “I’m just wondering when she’s supposed to sleep. It’s not clear to me yet how she’ll do it,” said German Green lawmaker Jutta Paulus. Aude van den Hove contributed reporting.

PARIS — The French government on Monday warned an American private equity firm purchasing a subsidiary of pharmaceutical giant Sanofi that it would face millions of euros in penalties if it tried to move jobs or drug production outside of France. The firm, CD&R, is attempting to acquire control of Sanofi subsidiary Opella, which manufactures over-the-counter drugs like paracetamol. Sanofi announced on Monday that it had entered exclusive talks with CD&R for the firm to buy 50 percent of Opella’s shares for around €16 billion. News of the potential deal sparked widespread criticism from across France’s political spectrum when talks were announced earlier this month, with politicians warning it could threaten manufacturing jobs in France and fall afoul of Europe’s post-pandemic push to secure its supply chains for critical medicines. Sanofi said it was selling Opella as part of its effort to focus on vaccines and innovative drugs. The French government responded to the backlash against the deal with a warning against offshoring jobs and production, but Paris is keen on the takeover. On Sunday evening, the government announced the various stakeholders had sealed an agreement requiring Opella to keep production, jobs and management in France after the American takeover. “To ensure that these guarantees are respected with the utmost rigor and firmness, [there will be] firm, immediate and far-reaching sanctions,” Economy Minister Antoine Armand told reporters on Monday morning as he presented the deal alongside Industry Minister Marc Ferracci. Under the trilateral deal signed by Sanofi, CD&R and the government, Opella will have to pay a €40 million penalty if it stops production in two of its factories that produce popular medicines like paracetamol, marketed by Sanofi in France’s omnipresent yellow boxes of Doliprane, and drugs to treat allergy and digestion problems. Workers at the two factories have been on strike since news of the American takeover broke, as they feared for their jobs. Under the deal, Opella will have to pay a €100,000 penalty for every single economic-related layoff. The biggest sanctions aim to preserve Opella’s relations with French suppliers. The pact requires Opella to purchase the active ingredient for the production of paracetamol from a future French factory to be opened by Seqens in 2026. Opella will have to pay €100 million penalty if it doesn’t keep that promise. The French government, via public investment bank Bpifrance, will also buy shares of Opella for up to €150 million to have more visibility on company strategy, but their stake amounts to just a percent or two of ownership. The Economy Ministry expressed confidence that the agreement’s strict punishments would help promote France’s strategic objectives of reshoring medicine production and keeping manufacturing jobs in the country — while also bringing in a bit of foreign cash as well. CD&R committed to invest €70 million in Opella’s French operations over the next five years and to keep the company’s headquarters and research and development activities in France.

PARIS ― The French government said Sunday it is backing the sale of a subsidiary of pharmaceuticals multinational Sanofi that produces over-the-counter drugs to American private equity firm CD&R after obtaining commitments to keep jobs, production and management in France. Economy Minister Antoine Armand said the government had been assured the deal, which is reported to be worth over €15 billion, won’t negatively affect the supply of essential medicines in France, including paracetamol, nor will it lead to job losses. Bpifrance, the country’s public investment bank, will take shares in Opella, the Sanofi subsidiary that is being sold to the American fund, but will not have a controlling majority. “We have obtained guarantees that Opella will remain and develop in France,” Armand said. “Our demands regarding employment, production and investment will be respected.” The takeover has proven highly controversial in France, with politicians from across the political spectrum warning it could threaten manufacturing jobs and thwart Europe’s push to secure its supply chains for critical medicines. As previously reported, however, the French government is keen on the deal. An economy ministry official told reporters Sunday evening that Paris had obtained “the highest possible level of guarantees” from the companies in a trilateral deal including Sanofi, CD&R and the government. The official spoke on condition of anonymity in line with French government communications policy. “Blocking the transaction would not have provided more guarantees,” the official said, noting that foreign buyers would bring “new investment capital” considered essential to developing France’s medicine manufacturing sector. The official confirmed that the government will now perform investment screening on the takeover. Armand and Industry Minister Marc Ferracci will present the details of the agreement reached with Sanofi and the American buyer on Monday.

Teresa Ribera is in line to pick up a hefty European Commission role in charge of the Green Deal, an area she knows well as Spain’s climate minister and as an international climate negotiator. But she’s also got another job policing competition, one of the most powerful Commission policy areas. POLITICO laid out what she’ll need to watch out for. 1. RETURN ON INVESTMENT Commission President Ursula von der Leyen told Ribera to overhaul competition policy to make Europe a more attractive place for companies. That aimed at two things: doing more to take account of the economy’s “acute needs” for mergers — by allowing more deals in strategic industries — and easing state aid to help governments funnel cash to industry. Ribera may have to walk a tight line between these political demands and what competition law requires her to do in checking — or even blocking — deals and subsidies. 2. KEEPING BIG TECH IN LINE Outgoing competition chief Margrethe Vestager brought in strict rules that aim to set limits on Big Tech power, the Digital Markets Act (DMA). The Commission is now under pressure to show that it can enforce these rules. Ribera is tasked with ensuring “rapid and effective enforcement actions” under the DMA, for which she’ll share responsibility with Henna Virkkunen, set to be in charge of tech sovereignty. An immediate priority will be policing Big Tech firms where the Commission thinks companies may not be in line with their DMA requirements. That sees the EU threatening fines for some of the world’s richest companies. Google and Apple have two probes each and Meta has one; all are due to wrap up by March. Another Apple investigation has a June deadline. Commission President Ursula von der Leyen told Ribera to overhaul competition policy to make Europe a more attractive place for companies. | John Thys/Getty Images 3. FINING TIMES Vestager was a whirlwind of antitrust action, fining Google more than €8 billion. Ribera may get her chance too. Probes into Facebook’s marketplace and Google’s advertising technology are at an advanced stage — potentially still allowing Vestager to sneak out one more big penalty before she goes. The Google investigation comes after more than a decade of EU frustration over a search giant whose market share was barely dinted by three antitrust probes. The Commission waved the threat of breaking up the company’s ad business to resolve the problems it sees. Ribera will be in charge of resolving a probe into Microsoft, which the Commission charged in June for linking its Teams service with its must-have office software. 4. CATCHING KILLER ACQUISITIONS Merger officials are worried about Big Tech or Big Pharma firms that scoop up small innovative rivals in deals that don’t get reviewed by regulators because the smaller firm’s revenue is too low. The Commission thought it had found a solution only for the EU’s top court to tell it to think again earlier this month. Von der Leyen has now told Ribera to “address risks of killer acquisitions from foreign companies seeking to eliminate them as a possible source of future competition.” How to do that is the tough part. Lowering the existing thresholds for a review via a legal change risks catching too many deals and exposing merger law to potential amendments from EU governments and the European Parliament. 5. UNDERSTANDING ARTIFICIAL INTELLIGENCE Competition enforcers around the world have been sniffing around Big Tech partnerships with AI startups to make sure the old guard isn’t using its power to keep smaller players from becoming fierce rivals. It’s also looking at Nvidia, the main supplier of chips used to power AI. | Stringer via Getty Images The Commission is looking at Microsoft’s exclusivity deals with ChatGPT developer OpenAI and is warning that it is watching the rest of the industry. It’s also looking at Nvidia, the main supplier of chips used to power AI. 6. FIGHTING FOREIGN SUBSIDIES The Commission has a new law to clamp down on help that non-EU governments give their favorite companies that has largely been aimed at Chinese business. So far it’s been used to probe aid for wind turbines and security scanners. Von der Leyen seems keen for Ribera to “vigorously enforce” these rules, telling her to proactively map “the most problematic practices.” What’s less clear is if she’ll give Ribera the staff she needs to do so.

Emmanuel Macron and Olaf Scholz lead the EU’s two biggest economies, sharing a 280-mile border. But when it comes to protecting Europe from global threats, these neighbors may as well be on different planets. At an event in Berlin this week, the French president warned that the EU “could die” and that if it continues with a “classical” free-trade agenda, it will be “out of the market” in two or three years. He made the case that Europe should embrace a more protectionist agenda if it wants to survive. Scholz meanwhile argued that a push to protect European industries from unfair trade practices “must not lead to us harming ourselves.” Germany is set to vote against new EU duties on Chinese electric vehicles on Friday, after Scholz intervened to toughen up his country’s opposition to the move. The clash dramatizes the dilemma facing the bloc’s 27 governments at a highly sensitive moment for global trade. The U.S. presidential election is on a knife edge and could see Donald Trump reelected in one month’s time. He has past form playing hardball with the EU on trade and has proposed sweeping new tariffs if he wins back the White House for the Republicans.  But even Democrat Joe Biden’s presidency has taken American policy in a protectionist direction, prioritizing domestic firms for hundreds of billions of dollars worth of industrial investment and tempting European companies to relocate to the U.S.  With China increasingly assertive especially in critical new carbon-neutral technology and supply chains, the EU has some choices to make if it wants to compete. Those decisions will require a large degree of consensus from national leaders. And the bloc’s two biggest powers can’t seem to agree. At the Berlin Global Dialogue on Wednesday, Scholz and Macron shook hands, smiled warmly and then spent the day offering wildly different takes on what Europe must do next. They diverged on key topics including proposals for joint EU borrowing, duties on imports of Chinese vehicles and trade talks with South American countries. During a Q&A at the event, Macron hinted at his difficulties with Scholz when he was asked whether he would be able to convince Berlin to issue joint EU debt, as proposed in an official report by former Italian PM Mario Draghi. The French leader laughed and said the last time it happened had been in response to the pandemic, with some help from “a colleague called Covid-19.” Macron and Scholz discussed the Draghi report on Europe’s competitiveness, which will be on the agenda of the next European Council summit. Officially, both Paris and Berlin say they agree with Draghi. But, in reality, they disagree on the proposed new wave of joint EU borrowing to invest in strategic sectors and rival China and the U.S. While France has often called for new EU debt and for repeating the experience of the post-pandemic recovery plan, for Germany that’s a no-go. This is not the first time the two leaders have been at loggerheads on European policy with tensions frequently bubbling over and once culminating in the cancellation of a joint Cabinet meeting in 2022. It doesn’t help that Scholz and Macron have very different leadership styles and personally don’t get on particularly well. IT’S MY ECONOMY, STUPID Over the past months, France and Germany made great efforts in public to display their shared vision for the EU’s economic agenda, signing joint blueprints on Europe’s industrial policy and co-drafting amendments to the European Council summit conclusions. But when it comes to the biggest existential issues facing Europe, Berlin and Paris systematically disagree. At the Berlin Global Dialogue on Wednesday, Olaf Scholz and Emmanuel Macron shook hands, smiled warmly and then spent the day offering wildly different takes on what Europe must do next. | Ludovic Marin/AFP via Getty Images France has been the cheerleader of an EU probe into subsidized Chinese electric vehicles which resulted in provisional tariffs hitting Chinese EVs. Since the investigation launched last year, Germany raised concerns that it could backfire. Berlin is expected to vote no in a key EU vote to confirm import duties proposed by the European Commission on Friday. But the truth is that despite all the leaders’ rhetoric about having Europe’s best interests at heart, both Scholz and Macron have their eyes firmly on domestic concerns.  “We just don’t have the same interests,” said French Senator Ronan Le Gleut, president of the Franco-German Senate friendship group. “We don’t have the same priorities, France’s automobile industry doesn’t export in China, or very little … whereas things like the crisis at Volkswagen worry everyone in Germany.” On Wednesday, Macron called for more cross-border mergers between EU companies in a not-so-implicit criticism of the German government, which wants to torpedo the takeover of Germany’s Commerzbank by Italy’s banking giant UniCredit. WEAK LEADERS According to Senator Le Gleut, France and Germany always go through a phase of disagreement before finally muddling their way toward a compromise. “At the end of the day we are not going to dislocate the EU over national differences,” he said. Le Gleut pointed to France and Germany finally reaching a deal on reforms to the energy market last year.  But even that spat isn’t over. After spending years fighting on whether to include nuclear power in one list of EU green investments, Paris and Berlin kept battling over the issue on almost every Brussels text that followed.  France wants to recognize nuclear as a strategic technology and ease state aid rules for the sector. But a top German official last week warned that EU resources should not be spent on nuclear power.  It’s also getting harder for both Berlin and Paris to make concessions that will upset voters at home, even if their countries benefit from a compromise.  The French president faces a fractured National Assembly and a surging far right. Meanwhile, Scholz, whose party has suffered a series of election defeats, is eyeing a federal election that is due by next September but could come earlier if his government falls apart. Frustrations are also growing in both capitals over the other’s perceived inability to budge on the EU’s existential questions.  On free trade, Nils Schmid, a German lawmaker for Scholz’s Social Democrats said many countries would rather be “trading with the EU than with China.” But if the EU continues to drag its feet on the deal between the EU and the South American Mercosur trade bloc, “it’s China who will be redefining trade rules.” “There is a geopolitical dimension — often the French accuse the Germans of not thinking about geopolitics, but there we feel that they are stuck in their Franco-French thinking,” said Schmid, who is also a member of the Franco-German parliamentary assembly. “Impatience is growing in Germany,” he said. Hans von der Burchard and Koen Verhelst contributed reporting.

An Italian bank making a big move to buy into a German bank sounds like exactly the sort of tie-up Europe’s leaders have spent years crying out for, so the EU can rear more home-grown heavyweight corporate champions to compete with rivals from the U.S. and Asia. Now that UniCredit this week actually made a swoop on Commerzbank, however, the devotees of deeper EU integration look set to be disappointed as Berlin’s domestic interests — once again — outweigh pan-European dreams. German Chancellor Olaf Scholz’s instant condemnation of UniCredit’s “unfriendly attack” suggests that ambitions for the cross-border scaling-up of the EU financial sector will remain, as they have been for a decade, just empty talk. “All member states, not only Germany, are calling for greater financial integration, but when faced with potential takeover of national champions they start having ‘second thoughts’,” said Italian MEP Irene Tinagli, a former chair of the European Parliament’s economy committee.  The fear in Berlin is that the Italians, should they take a bigger stake in Commerzbank than the German government, could sap lending to Germany’s prized Mittelstand, the small-and-medium sized manufacturers that are viewed as the backbone of the economy. This hostility from Scholz is infuriating politicians and economists from other EU countries who have long accused Germany of prioritizing its own interests to the detriment of the European single market. Many cast Berlin as an arch villain during the Covid crisis and Ukraine-related energy shock of 2022 when its protectionist instinct was to massively subsidise its domestic industry without regard to damage to the internal market, particularly in smaller EU countries that could not afford to compete with such largesse. “It would be a very bad signal for the integration of the European financial market … if this was blocked not on the basis of shareholder evaluations, but on the basis of purely political and protectionist considerations,” said Giovanni Sabatini, senior advisor at Grimaldi Alliance, a law firm, and former head of the Association of Italian Banks. “The more we succeed in creating large banking groups in Europe that are close in size and weight to their U.S. competitors, the better for the competitiveness of the European economy,” Sabatini added. BANKING UNION Building scale and interconnection between the finance sectors of EU countries has been the goal of European leaders for a decade, and goes by the name of Banking Union. That means, in part, allowing mergers to build large banks that span borders and are not tied to the fortunes of their home country governments — a nexus that cost the region dear a decade ago. Given banks’ dominance of Europe’s financial sector, Banking Union, is inextricably bound up with the EU’s Capital Markets Union project. In his recent report, former European Central Bank President Mario Draghi pointed to the fragmented financial landscape as a drag on growth and on wealth creation . The largest U.S. bank, JPMorgan Chase, is worth more than the top 10 European banks combined. A more consolidated European banking sector would raise efficiency and could cut the cost of capital for businesses, Draghi wrote, by doing more to turn the massive savings piles of Europeans into investment. “We need to have these mergers,” said Karel Lannoo, who heads the Brussels-based CEPS think-tank. “We should be extremely happy that there is somebody like [UniCredit CEO Andrea] Orcel. He has proved he can do it. He has more than doubled UniCredit’s market value — even before Commerzbank came into play.” The fear in Berlin is that the Italians, should they take a bigger stake in Commerzbank than the German government, could sap lending to Germany’s prized Mittelstand. | Thomas Lohnes/Getty Images But Scholz on Monday said he was opposed to a takeover after the Italian lender said it acquired the rights to another 12 percent of UniCredit stock through derivatives, raising its stake to around 21 percent. That would make it the bank’s biggest shareholder, ahead of the German government. Unfortunately, said Tinagli, “[The] Banking Union … seems to be worthwhile only if one is a predator and not a prey.”  COMMUNICATIONS DISASTER “Following on the heels of the Draghi report, this is a communications disaster,” former ECB Chief Economist Peter Praet told POLITICO.  Pointing to the experience of Belgium, where French and Dutch banks have moved in, Praet said he didn’t see how a takeover would pose any risks to the German economy. Praet cautioned that elements of the deal may still be unknown, but argued that, even if the German government had good reason to oppose a takeover, it should have communicated them more soberly, instead of delivering the “sort of chaotic, too passionate, too emotional reaction” that questioned the rationale of cross-border consolidation. Some Germans, at least, agree. “The German government’s actions have failed to meet either national or European interests,” said Stefan Berger, a German MEP with the center-right European People’s Party (EPP) group.  Even Germany’s liberal finance minister, Christian Lindner, meanwhile, appeared to distance himself from Scholz’s hard line on Tuesday. Asked what the government could do to stop a takeover, he replied: “That is a matter for the management and board of Commerzbank.” WHAT’S SAUCE FOR THE GOOSE… Much like Germany’s Lufthansa buying a struggling Alitalia from Rome, some say UniCredit should be given the chance to buy its weaker German counterpart. Italy’s Deputy Prime Minister and Foreign Minister Antonio Tajani said there was a “free market in Europe” and called out what he saw as double standards.  “If one transaction makes sense in eurozone banking it’s this one,” added Nicolas Véron, a banking expert with the think-tank Bruegel, adding that it was particularly a good deal for Commerzbank shareholders. The bank’s shares are up 20 percent since UniCredit’s approach. But Stefan Wittmann, a union representative and a member of Commerzbank’s supervisory board, pointed to the possible downside. He said it would likely lead to widespread job losses, something that’s happened at other banks taken over by Orcel. Wittmann also cited UniCredit’s large holding of Italian government bonds. Sudden volatility in the Italian financial markets could “have a domino effect” on the German economy if the deal goes ahead, he warned.  Véron pushed back against that argument, pointing to the fact that UniCredit is already more geographically diversified than many European banks. At the end of June, Italy accounted for only 35 percent of UniCredit’s €108 billion sovereign bond holdings and 38 percent of its €383 billion loan book, with Germany and Central Europe together accounting for more. Olaf Scholz’s instant condemnation of UniCredit’s “unfriendly attack” suggests that ambitions for the cross-border scaling-up of the EU financial sector will remain. | Sean Gallup/Getty Images Scholz may want this problem to just go away — indeed, with his political coalition beset at all sides and his future at the head of the Social Democratic Party (SDP) in jeopardy, he has bigger things on his mind. But, judging by Orcel’s past (he successfully sued Santander for millions after it reneged on an agreement to hire him), he is not one to give up easily. Nor is he likely to be forced to. The ECB will soon be processing a request from UniCredit for permission to raise its stake to as much as 30 percent. While it is bound by procedure, Draghi’s successor Christine Lagarde made little attempt to hide her support for the idea at her last press conference, saying: “Cross-border mergers have been hoped for by many authorities, and it will be very interesting to see that process unfold in the weeks to come.” Given that elections to Germany’s federal parliament are only a year away, Orcel may just have to bide his time.  “My view is that it’s a long game,” said Bruegel’s Véron. “One way to look at it is: Which of the two has more staying power, Andrea Orcel or Olaf Scholz?”