A legal crisis is brewing in Europe over the status of German public-sector banks that, taken to its extreme, threatens the EU itself.
The European Commission (EC), urged on by private-sector banks, says guarantees for state-owned Landesbanken and municipality-owned Sparkassen are incompatible with EU law.
The public banks refute these allegations and argue that German private banks are seeking to enforce their privatization as a prelude to scooping up efficiently functioning Sparkassen and Landesbanken to cover their own embarrassing failure to build decent banking businesses in Germany.
Will the private banks get their way? Will the dispute over the Landesbanken be taken to the European courts? Or will the Landesbanken and Sparkassen turn the tables on their private-sector opponents and merge into new powerful banking franchises? Investors are looking on with some anxiety.
Already, the German public-bank sector is showing the first signs of change.