Germany will want to prevent a national embarrassment after being caught off guard by UniCredit's acquisition of Commerzbank.

• Commerzbank's potential multibillion euro merger with Italy's UniCredit has caught German authorities off guard.
• On Tuesday, CNBC reported that market observers claimed the swoop may have caused embarrassment among Germany's government, while some argued that the takeover attempt's outcome could threaten the European project's meaning.
• On Monday, UniCredit, a Milan-based bank, announced that it had increased its stake in Commerzbank to approximately 21% and submitted a request to increase its holding to a maximum of 29.9%.

The potential merger of Frankfurt-based Commerzbank with Italy's UniCredit has caught German authorities off guard, prompting a strong reaction from Berlin.

The swoop may have caused embarrassment among Germany's government, which opposes the move, and it's been argued that the outcome of the takeover attempt could threaten the meaning of the European project.

UniCredit, based in Milan, announced on Monday that it had increased its stake in Commerzbank to approximately 21% and submitted a request to increase that holding to up to 29.9%. This move follows UniCredit's earlier decision to take a 9% stake in Commerzbank.

If Commerzbank can be made as efficient as UniCredit, there will be a significant increase in profitability, according to Octavio Marenzi, CEO of consulting firm Opimas, who spoke on CNBC's "Squawk Box Europe" on Tuesday.

Olaf Scholz, the German Chancellor, is not an investor but a politician who is deeply concerned about job creation. UniCredit's efforts to streamline its Italian and German operations have been impressive, as demonstrated by its success in reducing costs.

On Monday, Scholz criticized UniCredit's decision to increase its stake in Commerzbank, calling it an "unfriendly" and "hostile" attack, according to Reuters.

On Tuesday, Commerzbank's Deputy Chair Uwe Tschaege reportedly voiced opposition to a potential takeover by UniCredit. According to reports, Tschaege stated outside of the lender's headquarters in central Frankfurt that the message was clear: "We don't want this."

According to Tschaege, he feels like vomiting when he hears Orcel's promises of cost savings as CEO of UniCredit.

If UniCredit successfully carries out a hostile takeover, as many as two-thirds of Commerzbank's jobs could disappear, according to Stefan Wittman, a Commerzbank supervisory board member.

The bank has not yet responded to a request for comment on Wittmann's statement.

Although hostile takeover bids are rare in the European banking industry, BBVA's all-share offer for Banco Sabadell in May caused a stir. However, the latter Spanish lender rejected the bid.

The German government and trade unions are concerned that the proposed changes could result in significant job losses.

"There might be a national embarrassment that the Italians are demonstrating how to manage their banks," he said.

No representative from Germany's government responded to CNBC's inquiry on Tuesday.

The European Union's executive arm announced plans to create a banking union to improve the regulation and supervision of lenders across the region, a move that Germany's Scholz has previously advocated for.

What's at stake?

Craig Coben, a former global head of equity capital markets at Bank of America, stated that the German government must have "very good" reasons to prevent UniCredit from acquiring Commerzbank. He emphasized that this decision must align with the principles of European integration.

According to Coben, it is challenging for UniCredit to acquire or reach an agreement with Commerzbank without the approval of the German government. However, if Germany wants to intervene or block the approach from UniCredit, it must have a legitimate reason.

Germany has committed to the EU's single market, single currency, and banking union, and therefore, it would be inconsistent to obstruct the merger based on national interest.

"What is the meaning of the banking union and the European project, in my opinion, is what's at stake here."

In a report released this month, former European Central Bank chief Mario Draghi stated that the European Union requires hundreds of billions of euros in additional investment to achieve its competitiveness goals.

The "incomplete" banking union is one factor that continues to hinder competitiveness for the region's banks, as previously stated by Draghi, who has served as Italian prime minister.

— CNBC's April Roach contributed to this report.