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The plan to merge two major German banks reflects the European concern about falling behind the U.S. and China. But national interests seem to prevail once again.

It is nothing short of a national champion that a merger between Deutsche Bank and Commerzbank would create – an idea that only politicians can come up with. Deutsche Commerz, the name under which the project is known, is the brainchild of Finance Minister Olaf Scholz and Joerg Kukies, his state secretary. The giant would have some 38 million customers, 140,000 employees and a balance sheet of almost 2 trillion euros ($2.27 trillion).

The idea to merge two crisis-ridden companies to form an industry champion promises to be an arduous and painful exercise – if it ever takes off. But this piece isn’t about the project as such but about the conditions that allow such ideas to foster.

Losing Out

The Deutsche Commerz project was born for two main reasons: first, the worry prevalent in Europe – and mainly in the European Union that is – to fall behind the two big economic powerhouses, the U.S. and China.

Second, an inability of the EU to present a strategy of how it wants to compete against dynamic global forces for economic and technological supremacy. The German quest to create a national champion in banking was born out of this inability of the EU.

Coinciding with the public announcement that the two German banks had entered into merger talks, the Swiss Bankers Association on Monday published a policy paper titled «Why Switzerland Needs Big Banks». The answer to this question for sure would have read differently a few years ago.

Capital Market Access

Today, there’s no second-guessing as to the answer: of course, Switzerland needs the two big banks, UBS and Credit Suisse. Without them, corporate Switzerland would depend on foreign banks – mainly large U.S. investment banks – for their global capital needs.

The same applies to Europe. The economic performance of the eurozone depends on the stability and strength of the banking system. The eurozone is in the process of stagnation because its banking system is weak and fragile. The banks aren’t financially sound enough to take the risks involved in investments and innovation. U.S. banks have achieved a dominance in the European capital markets business over the past years that betrays the underlying problems of the continent.

Flexible U.S. – Rigid Europe