Rather than moving to formally block Banco Bilbao Vizcaya Argentaria’s (BBVA) proposed acquisition of Banco Sabadell, the Spanish government is signaling that it is prepared to attach such a broad set of conditions—justified in vague terms as serving the “public interest”—that the deal would likely collapse under its own weight. It’s a kind of regulatory asphyxiation: a polite yes that functions as a strategic no.
A formal decision by the government is expected by the end of June, but this isn’t just about one deal. It’s a test of how committed Spain—and, by extension, the EU—is to a rules-based market economy. If governments can bypass formal channels to impose opaque burdens on lawful transactions, the threat isn’t rejection; it’s unpredictability. And unpredictability, in financial markets, is poison.
BBVA’s offer makes strategic sense. The bank has the scale, balance sheet, and international reach to complement Sabadell’s regional footprint and SME portfolio. The European Central Bank and Spain’s competition authority, the CNMC, have not raised objections. Even the IMF has publicly endorsed the operation, highlighting its economic logic and potential to strengthen the Spanish banking system. On paper, the institutional process is intact.
But politics has now taken center stage. The Spanish Ministry of Economy—despite lacking a formal veto—has indicated that the government may allow the acquisition to proceed only if BBVA accepts a raft of conditions. These could include employment guarantees, preservation of local branches, continued lending to SMEs, and even symbolic gestures like retaining the Sabadell name. Each demand may appear manageable in isolation. Taken together, they could make the transaction economically irrational, leaving BBVA little choice but to walk away.
This approach isn’t without precedent. In Italy, the Meloni government recently used its “golden powers” to impose sweeping conditions on UniCredit’s bid for Banca Popolare di Milano—including severing ties with Russian clients and preserving fixed financial ratios. UniCredit is now in court, arguing the measures amount to a de facto veto. Spain seems to be following the same playbook, but without the legal clarity.
To reinforce its political case, the Spanish government launched a nonbinding public consultation on the merger, a highly unusual move in the context of corporate acquisitions. The public-comment process, which closed on May 16, was open to individuals, associations, and institutions across Spain, allowing anyone to submit views on whether the deal aligned with the “general interest.”
While framed as a fact-finding exercise, the consultation inevitably lent political weight to opposition voices. Corporate mergers are not popularity contests, and framing such decisions around vague public sentiment risks blurring the line between governance and populism. What’s more, these gestures point to a deeper issue: Spain isn’t acting in a legal vacuum.
That’s what makes this moment so troubling. EU law guarantees the freedom of establishment and the movement of capital. Once cleared by regulators, a properly notified merger should be permitted to proceed unless there is a clear and proportionate justification grounded in public policy. While member states can intervene on such grounds as national security or financial stability, the government’s invocation of the “general interest” here appears legally thin and politically elastic.
Added to this is an additional element of legal uncertainty: article 60.3 of the Spanish Competition Act provides that the Council of Ministers may modify the conditions imposed by the CNMC “for reasons of public interest other than the defense of competition.” But given that the government cannot oppose a transaction that has been authorized by the competition authority, it is consistent to interpret that it also cannot tighten the conditions imposed by the latter.
This more restrictive interpretation is also the one that best fits the rule’s purpose, as explained in the preamble to the Spanish Competition Act, which emphasizes that governmental intervention in these proceedings must be exceptional and clearly limited.
Spain has worked hard to build institutional credibility. In the wake of the eurozone crisis, it pursued a tough but transparent path to banking consolidation. Its regulatory bodies gained a reputation for professionalism and rules-based governance. That reputation matters—especially in financial services, where trust is a prerequisite, not a luxury. In a post-pandemic Europe, where access to capital and scale are key to banking competitiveness, Spain’s handling of this merger will shape its standing as a financial center.
If the BBVA/Sabadell deal fails because the numbers don’t add up, so be it. But if it fails because the government makes the numbers unworkable, that’s something else entirely: political interference dressed in legal form. The damage won’t stop with this transaction. It will ripple through Spain’s investment climate—and more broadly, through Europe’s efforts to build a stronger, more integrated banking sector.
BBVA has remained publicly committed to the offer, but analysts and market observers warn that prolonged uncertainty or disproportionate demands could derail the economic rationale. Meanwhile, Sabadell’s symbolic role in Catalonia has added a layer of political sensitivity that is difficult to ignore.
There is more than a hint of irony here. The European Commission has long urged member states to support domestic and cross-border mergers in banking, to foster resilience and global competitiveness. But if governments can use discretionary tools to smother deals they don’t like, the result will be a more fragmented, more fragile banking landscape—the exact opposite of what Brussels is trying to achieve.
There is still time for Spain to course correct. That would mean letting regulators do their jobs and avoiding symbolic theater. And it would also mean ensuring that any conditions imposed are transparent, proportionate, and legally grounded. Otherwise, the message to investors would be unmistakable: market rules apply—until they don’t.
BBVA’s offer may yet proceed. But the precedent being set here—of how a government can reshape or derail private-sector decisions without ever issuing a formal denial—will last far beyond this merger. That’s what Europe should be watching.
