European Competitiveness: Challenges and Prospects

European Union leaders agree on the need to regain competitiveness to address challenges such as defense, climate change, and economic growth. However, there are contradictions in their policies, particularly in the banking sector.

European banks lag in size and capitalization compared to American banks, focusing mainly on the national level. The market value of JP Morgan Chase & Co. exceeds the total value of the seven largest European banks. Low TCE (tangible equity) levels make them less resilient.

EU officials know the necessary reforms: a pan-European deposit guarantee mechanism, an EU-level resolution authority, and limits on the exposure of the country of origin. However, politics hinder these changes, as national governments prefer 'national champions' and banks favor local supervision.

Examples include Friedrich Merz's criticism of the Commerzbank AG acquisition and Germany's opposition to deposit insurance at the EU level. Emmanuel Macron pushed for a postponement of the implementation of stricter capital requirements.

A fragmented banking system undermines progress in security, the environment, and productivity. European leaders must recognize this to enhance EU competitiveness.