Despite representing around 20% of world GDP, the eurozone does not have a top-ten bank or financial services institution in the FT 500 global ranking. The knock-on effects of such a fragmented and vulnerable banking system are apparent in Europe’s relatively poor showing in other sectors, such as technology and energy that are vital for EU members’ economic future.
Restoring stability in Europe’s banking system, by the IMF’s own estimate, will require at least one-third of Europe’s banks to close or merge. For Deutsche Bank, market speculators already seem to be expecting a merger, such as with Commerzbank, another German institution.
A cross-border European bank merger would have several benefits. As with any merger, consolidating weak, underperforming banks would enable them to strengthen their balance sheets and restructure non-performing loans – estimated to be worth some €1 trillion ($1.1 trillion), roughly three times higher than other global jurisdictions – thereby benefiting the wider economy.
But, if such a merger is to be the first step toward consolidating the European banking sector and strengthening the EU, it should be a cross-border affair, bringing Deutsche Bank together with a significant French and/or Italian financial institution. Such an approach could be a game changer in terms of the EU’s political credibility, which is perhaps most crucial to keeping the EU dream alive.