In 2005, the Dutch bank ABN Amro made a takeover bid for the Italian bank Antoveneta. The blocking of this deal by the Italian central bank demonstrates that there are powerful political interests that are blocking the process of European financial integration. This fierce reaction is normally thought to emerge from a sense of patriotism.
But things are not that simple.
There are a whole series of different interest groups that work against such mergers, and that will make the road to integration a long and difficult one.
Many Italian enterprises receive credit based on the personal relationship they have with their bank. As a local entrepreneur in an Italian newspaper commented: “here it doesn’t count how big you are, it’s all about charisma and history.” Powerful local business interests thus see the special relationships they have with their bank put under threat by mergers with foreign banks who have a different culture and may not view special friendships with the same lax eye.
One of the reasons that the process of financial integration is difficult is the differing standards of integration within member states. Dutch banks merged into ‘national champions’ in the early 1990’s. In contrast, the Italian banking market is still highly fragmented. The Dutch takeover plan would have prevented the Italian banks achieving their objective: national consolidation. This would also prevent any Italian plans to play an important role in European banking. Furthermore, the more efficient Dutch banks charge much less for regular payments than an Italian bank would. As a result, foreign entry in the market would undercut the existing Italian banks resulting in a lower market share and less opportunity for growth for the Italian banks. If Europe is to succeed in integrating its financial markets, it must find a way to allow national economies not to be unduly exposed to the brunt of free market trade.
Not forgetting the people…
It is not only the banks and enterprises who are fighting foreign entry, it is also the employees, fearful of the possible consequences of a globalised workplace. For instance, in the attempted takeover of the French firm CIC in 1998, Crédit Mutuel, a small French co-operative bank, was preferred to the higher bid of ABN Amro because it promised not to cut jobs. In countries with high unemployment and powerful trade unions, such as France, the government listens to these fears about globalisation and often acts accordingly.
For this is a vital terrain for politicians. Playing the patriotism card is a vote winner. Furthermore, appeasing the enterprises, banks and employees is vital if one wants to be elected.
Calling the law
The European legislation is unlikely to offer help to these interest groups anytime soon. The European Commission is sharply watching to see if governments adopt anti-competitive practices. In such a climate, the only thing that governments can do is attempt to get another national business to take over the threatened firm. We saw this process only recently in the Suez affair, and the continual see sawing between integration and protectionism now seems to be repeating itself in the energy sector.
Barrosso, the President of the European Commission, in a 17 March letter to the national leaders of Europe, stated that the acceptance of foreign entry in national markets will be a top priority on Europe’s agenda. He has a long way to go.