The European Union has cautioned the Spanish government against obstructing banking consolidation, which it views as essential for building stronger financial institutions. This follows Madrid’s decision to launch a ministerial review of BBVA’s takeover bid for rival Sabadell.

Spain’s government has opposed BBVA’s unsolicited offer for over a year, citing concerns over possible job losses.

On Tuesday, economy minister Carlos Cuerpo announced the unusual step of reviewing the bid, despite it already receiving approval from both the European Central Bank and Spain’s competition authority.

While the Spanish government cannot prevent BBVA from purchasing shares in Sabadell, it does have the authority to block a full merger. It now has until the end of June to decide whether to approve the deal and whether to impose conditions related to job protection and branch closures, Reuters reports.

Olof Gill, spokesperson for financial services at the European Commission, stated there is no justification for blocking the deal if it meets risk and competition requirements. He said that consolidation is essential for creating stronger European banks and for advancing the EU’s Savings and Investment Union.

“It is important that banking sector consolidation can take place without undue or inappropriate obstacles being imposed,” he said.

Cuerpo responded that he was not worried about the EU's warning.

“We are fully respectful of the procedure, the deadlines, and the involvement of the various institutions that are part of this process,” he stated.

Over the past year, European banking mergers and acquisitions have surged, as cash-rich lenders pursue deals aimed at creating institutions strong enough to compete with counterparts in the US and Asia, a goal supported by industry regulators and executives.

However, several of these deals have encountered political resistance. Berlin has opposed UniCredit’s bid for Commerzbank, while Italy recently placed conditions on UniCredit’s offer for fellow Italian lender Banco BPM.

BBVA has stated that its goal in acquiring Sabadell is to create Spain’s second-largest lender. As part of its agreement with the competition regulator, BBVA committed to limiting branch closures and maintaining credit access for small and medium-sized businesses.

Whereas Sabadell argues that the deal would harm market competitiveness, especially in the lending sector for small and medium-sized enterprises, where it holds a strong position.