A man shelters from the rain under an umbrella as he walks past the Euro currency sign in front of the former European Central Bank (ECB) building in Frankfurt am Main, western Germany.Kirill Kudryavtsev | Afp | Getty ImagesEuropean banking’s latest takeover battle is widely regarded as a potential turning point for the region — particularly the bloc’s incomplete banking union.Italy’s UniCredit has ratcheted up the pressure on Frankfurt-based Commerzbank in recent weeks as it seeks to become the biggest investor in Germany’s second-largest lender with a 21% stake.The Milan-based bank, which took a 9% stake in Commerzbank earlier this month, appears to have caught German authorities off guard with the potential multibillion-euro merger.”The long-discussed move by UniCredit, Italy’s number one bank, to seek control of Germany’s Commerzbank is a watershed for Germany and Europe,” David Marsh, chairman of London-based OMFIF, an organization that tracks central banking and economic policy, said Tuesday in a written commentary.Whatever the outcome of UniCredit’s swoop on Commerzbank, Marsh said the episode marks “another huge test” for German Chancellor Olaf Scholz.The embattled German leader is firmly opposed to the apparent takeover attempt and has reportedly described UniCredit’s move as an “unfriendly” and “hostile” attack.”The dispute between Germany and Italy over UniCredit’s takeover manoeuvres – branded by Scholz an unfriendly act – threatens to inflame relations between two of the Big Three member states of the European Union,” Marsh said.”A compromise could still be found,” he continued. “But the hostility developing in Italy and Germany could scupper any meaningful steps towards completing banking union and capital markets integration, which all sides say is necessary to drag Europe out of its malaise.”What is Europe’s banking union?Designed in the wake of the 2008 global financial crisis, the European Union’s executive arm in 2012 announced plans to create a banking union to make sure that lenders across the region were stronger and better supervised.The project, which became a reality in 2014 when the European Central Bank assumed its role as a banking supervisor, is widely considered to be incomplete. For instance, the lack of a European deposit insurance scheme (EDIS) is one of a number of factors that has been cited as a barrier to progress.European leaders, including Germany’s Scholz, have repeatedly called for greater integration in Europe’s banking …