EU Push for Banking Unity Runs Into Roadblocks in Madrid and Rome

Brussels wants bigger banks to compete globally—but national leaders keep digging in their heels

Brussels is losing patience. For years, European regulators have pushed hard for a stronger, more integrated banking sector to rival American and Chinese behemoths. But every time a major cross-border or even domestic consolidation inches forward, national governments find new ways to put up fences.

And now, the Commission has had enough.

The European Commission has launched investigations into the Spanish and Italian governments for what it sees as politically driven meddling in high-profile banking mergers. The move signals a growing frustration in Brussels: despite years of lofty promises, national interests still trump economic integration when big banks are involved.

Spanish Government Throws Cold Water on BBVA–Sabadell Deal

In Spain, the €12 billion hostile takeover bid by Banco Bilbao Vizcaya Argentaria (BBVA) for its smaller rival, Banco Sabadell, had cleared the usual hurdles. The national competition authority signed off. The European Central Bank (ECB) backed it. Even the Bank of Spain recommended it.

But that wasn’t enough for Pedro Sánchez’s Socialist-led government.

In late June, Madrid slapped on new conditions that many analysts call excessive. Among them: BBVA can’t fully absorb Sabadell for three years. That’s an unusually long integration period for a deal of this kind.

It’s a move that has raised eyebrows both in Spain and across Europe. The government claims it’s protecting local jobs and financial stability. Critics say it’s political interference, plain and simple.

BBVA, after some hesitation, said it would still push forward with the deal—despite the added friction.

One official familiar with the Commission’s thinking put it bluntly: “We can’t have 27 governments deciding who gets to buy whom. That’s not how a single market works.”

Italy’s State Influence Worries Brussels Too

The drama isn’t limited to Spain.

Over in Italy, the government’s quiet but firm grip over banking deals is also causing alarm. Rome’s influence is less visible, but no less potent.

The state owns a big stake in Banca Monte dei Paschi di Siena, a historically troubled lender that has seen several bailouts. More recently, attention has turned to BPER Banca, a mid-sized regional lender with growing national ambitions.

The Italian Treasury has been accused of informally discouraging any foreign bids involving these institutions, especially if it would dilute state influence.

There’s no formal decree. But, according to Brussels insiders, the message is loud and clear: don’t touch our banks.

• In both Spain and Italy, the Commission is exploring whether such government actions violate EU rules on fair competition and free movement of capital.

A source with knowledge of the Commission’s internal review says there is “genuine concern” that these national-level actions are undermining the spirit of the Banking Union—one of the EU’s key unfinished projects.

Europe’s Banking Union Is Still More Idea Than Reality

The EU’s Banking Union was born from the chaos of the eurozone debt crisis more than a decade ago. The goal? A single, unified framework that could ensure strong oversight, protect depositors, and allow banks to operate freely across borders.

But while the ECB has become the chief regulator of major eurozone lenders, big pieces of the puzzle are still missing. Chief among them: political will.

National governments continue to treat large banks as quasi-strategic assets—too big to fail, and too important to give up control over. And that means any merger that might shift influence, headquarters, or tax receipts is treated with suspicion, if not outright hostility.

Just look at the scoreboard.

Many in Brussels fear that unless national capitals get out of the way, Europe will never have its own JPMorgan or Industrial and Commercial Bank of China (ICBC). Instead, it will continue to rely on a patchwork of mid-sized institutions that can’t scale effectively.

Banks Caught Between Brussels and Domestic Politics

For the banks themselves, the tension is exhausting.

Executives often find themselves preparing merger strategies that satisfy not one, but three layers of authority: national regulators, the ECB, and now increasingly the political class.

In BBVA’s case, that means navigating (sorry—working through) the Spanish government’s imposed waiting period, while also staying onside with European officials eager to see the deal succeed.

The risk is clear: if political resistance becomes the norm, fewer banks will even attempt these mergers.

And that’s bad news for a region already grappling with anemic growth and fierce competition from overseas.

“Everyone talks about strategic autonomy and competitiveness,” said one banking lobbyist in Brussels. “But the second someone tries to build a truly European bank, it’s like, ‘whoa, not in my backyard.’”

Brussels Moves Closer to Legal Action—But Carefully

The Commission hasn’t yet opened formal infringement procedures against Spain or Italy. But letters have been sent, and meetings are being held behind closed doors.

Officials say they’re collecting evidence and building a case that might lead to legal proceedings if national governments don’t back down.

One EU diplomat summed it up this way: “This is a slow-burning crisis. The market won’t collapse tomorrow. But if we don’t act, we’re locking ourselves into a smaller future.”

For now, Brussels is playing diplomat. But if things don’t shift soon, it may bring the hammer down—with infringement procedures, court battles, and possibly even financial penalties.

Nobody wants it to come to that. But the longer national politics trumps market logic, the louder the noise from Brussels will grow.