St. George’s Day in Catalonia — commemorating the slaying of an evil dragon — is meant to be a celebration of love, accompanied by romantic exchanges of books and roses. This April, a highly political banking deal loomed unexpectedly large over festivities. For the iconic Catalan lender Banc Sabadell, the dragon to be killed was Madrid-headquartered banking giant BBVA, which is pressing a hostile offer to buy it for €17 billion in stock. The catchphrase of Banc Sabadell’s ads, sung on radio and TV, was: “It’s April again, the insatiable dragon is here. If we kill him, he doesn’t seem to learn. What should we do to make him understand?” Prominent Catalan personalities then proposed various ways to fend off dragon attacks. Tensions are now at an all-time high as Barcelona and Madrid await the results on Oct. 10 of the second takeover offer by BBVA, at a higher price per share, to Banc Sabadell’s shareholders. To many Catalans, the deal is viscerally political — and not simply a matter of stock valuations. While the EU may be pushing for more bank mergers to ensure European finance houses are more internationally competitive, the idea of losing Banc Sabadell to interests in Madrid is anathema. Banc Sabadell has a symbolic cachet in Catalonia. Were the region to win independence, it would be an important economic motor for the nation. It is critical to funding the region’s all-important small- and medium-sized enterprises. This makes the deal a headache for Prime Minister Pedro Sánchez. Although the takeover has been approved by Spain’s antitrust authority, he has sought to attach extra hurdles to it to please his Catalan nationalist allies, who are vital to the survival of his fragile government. EMOTIONAL ELEMENT Catalonia’s Economy Minister Alícia Romero supports the Spanish government’s extra restrictions on the deal — which include a three-year postponement of the merger once BBVA acquires a majority of shares. During these three years BBVA would not be able to fire staff, close offices or merge its IT systems or accounts, keeping Banc Sabadell as a separate entity. That makes the merger more risky for BBVA. “It is true that there is an emotional element here,” she told POLITICO. “This is a bank that was born in Sabadell, a prominent textile city, of the Catalan bourgeoisie, which has always been committed to financing SMEs” — a sector she called Catalonia’s “economic fabric.” Romero is member of the Catalan Socialist Party and an ally of Sánchez. Still, she argued the core objection to the deal was that it would reduce the number of banks in the region, which would lessen competition and worsen conditions for customers. Catalonia’s Economy Minister Alícia Romero supports the Spanish government’s extra restrictions on the deal. | David Zorrakino/Europa Press via Getty Images “If Banc Sabadell disappeared, it could leave many SMEs without this financing, without these possibilities to grow and open up to markets,” she said. Romero also argued that the government would not like to see the bank’s decision-making power shift to Madrid, since that could mean job losses in Catalonia and office closures. THE EU WANTS MERGERS For its part, BBVA says it doing exactly what the EU wants. BBVA chair Carlos Torres has resolutely defended the deal, insisting that both Europe and Spain need financial powerhouses of scale to compete on global markets. He stressed “both BBVA and Banco Sabadell shareholders will become the owners of a bank better prepared for the future.” In response to Banc Sabadell’s dragon ads, BBVA launched a rival campaign called “Let’s Move Forward,” featuring actors portraying shareholders from both banks discussing reasons why the merger would benefit both sides. BBVA is opting to sweeten the deal by announcing the highest dividends the company has ever distributed — including for Banc Sabadell’s shareholders who decide to swap shares for its own. While Catalans have been the most outspoken opponents of the deal, no major Spanish party has come out strongly in favor. The center right People’s Party and far-right Vox have largely remained tight-lipped, just warning against the concentration of the banking sector. The deal is also a particularly public and political clash because of the importance of Banc Sabadell’s retail shareholders, who make up about 48 percent of its owners. “Banc Sabadell’s shareholders are, for the most part, SMEs and retailers,” said Iñigo de Barrón, former president of the Spanish association of economy journalists, who covered banks for more than 20 years. “We’re talking about the middle class, people who feel that if they end up in the hands of a very large bank that doesn’t know them at all, it’s not a pleasant thing.” “It’s a sentimental takeover bid, the most emotional I’ve ever seen,” he added. MADRID VS. BARCELONA VS. BRUSSELS After losing most of their small banks in the wake of the eurozone financial crisis — many of them absorbed into BBVA — Catalans still carry the trauma of seeing outside giants swallow their economic power. “In the last 20 years, the entire Catalan banking and credit system has been dismantled,” said Albert Batet, spokesperson of the pro-independence Junts party. The merger “means a loss of economic weight for Catalonia compared to the economic weight of Madrid, which is where BBVA has its headquarters, a bank from Madrid, with a Spanish identity,” Batet added. Their rivals from the Catalan Republican Left, also pro-independence, agree. “Weakening the Catalan financial system will ultimately result in job losses, affect the financing of SMEs, and — seen from the perspective of the state — it benefits the concentration of economic power in Madrid and its local economic network, and we don’t like that,” said Isaac Albert, spokesperson for the party. “It’s not just about sentimental reasons — although of course, we are concerned about losing a Catalan bank — it’s mainly about the real impact this has,” he said. Catalan politicians say they support Europe’s vision of trying to foster big banks to compete with other global actors, but they don’t want to take that step themselves. They argue such mergers should be among banks from different countries rather than within one member country, because, they say, that simply weakens the consumer’s position by reducing competition. “Starting with two Catalan-Spanish domestic banks doesn’t seem like the solution to me,” said Catalan Economy Minister Romero. “The solution has to come from the top; it needs a very strong and ambitious strategy from all countries. It’s not that we have to be the ones to start,” she added.

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.