The acquisition of Commerzbank by UniCredit marks a significant turning point for Europe and its banking union.

• The ongoing takeover battle in European banking is viewed as a pivotal moment for the region, particularly the incomplete banking union.
• UniCredit, an Italian bank, has increased its stake in Commerzbank, Germany's second-largest lender, to 21%, putting pressure on Frankfurt-based Commerzbank.
• Commerzbank's 9% stake was taken by a Milan-based bank, surprising German authorities.

The ongoing takeover battle in European banking is viewed as a pivotal moment for the region, particularly the incomplete banking union.

In recent weeks, UniCredit of Italy has increased the pressure on Commerzbank, based in Frankfurt, in an attempt to become the largest shareholder in Germany's second-largest lender with a 21% stake.

The potential multibillion-euro merger between Commerzbank and the Milan-based bank, which took a 9% stake in Commerzbank earlier this month, has caught German authorities off guard.

David Marsh, chairman of London-based OMFIF, stated in a written commentary on Tuesday that UniCredit's move to seek control of Germany's Commerzbank is a significant milestone for Germany and Europe.

The acquisition of Commerzbank by UniCredit represents "another significant challenge" for German Chancellor Olaf Scholz.

The German leader is strongly against UniCredit's reported takeover attempt, which he has described as "unfriendly" and "hostile."

The takeover maneuvers of UniCredit are causing tension between Germany and Italy, which could lead to a deterioration of relations between two of the Big Three member states of the European Union, according to Marsh.

"A compromise could still be reached, but the growing hostility in Italy and Germany could hinder any progress towards completing banking union and capital markets integration, which is crucial for pulling Europe out of its economic downturn."

What is Europe's banking union?

In response to the 2008 global financial crisis, the European Union's executive arm unveiled plans for a banking union in 2012, aimed at strengthening and supervising lenders across the region.

The project, which became a reality in 2014 with the European Central Bank assuming its role as a banking supervisor, is widely considered incomplete. One of the factors that has been cited as a barrier to progress is the lack of a European deposit insurance scheme (EDIS).

European leaders, including Germany's Scholz, have consistently advocated for increased integration in Europe's financial industry.

Germany's opposition to UniCredit's move on Commerzbank implies that Berlin is only in favor of European banking integration on its own conditions.

No immediate response was received from a spokesperson for Germany's government when contacted by CNBC for comment.

Although not common, a hostile takeover bid occurred in the European banking sector when BBVA launched an all-share offer for Banco Sabadell in May.

Earlier this month, the head of Banco Sabadell stated that it is highly unlikely that BBVA will succeed with its multi-billion-euro hostile bid, according to Reuters. However, BBVA CEO Onur Genç told CNBC on Wednesday that the takeover is "moving according to plan."

The Spanish authorities, who possess the authority to obstruct any acquisition or merger of a bank, have expressed their opposition to BBVA's hostile takeover bid, stating that it could have detrimental effects on the country's financial system.

Mario Centeno, a member of the European Central Bank's Governing Council, stated on Tuesday that European policymakers have been striving for over a decade to establish a "true banking union" and are still working towards it.

The unfinished project results in an awkward mix of national and EU authorities and instruments for the intervention framework in banking crises, as stated by Brussels-based think tank Bruegel.

The ECB's Centeno acknowledged the frustration of leading politicians in Germany and Spain regarding comments opposing banking consolidation, stating, "We have been working diligently in Europe to finalize the banking union. However, there remain some unresolved issues."

What happens next?

UniCredit is now "in play" for a potential takeover after Germany sold a small 4.5% stake to the bank earlier this month, according to Thomas Schweppe, founder of Frankfurt-based advisory firm 7Square and a former Goldman mergers and acquisitions banker.

On Wednesday, Schweppe stated on CNBC's "Squawk Box Europe" that we are proposing a European banking landscape and in Germany, they support strong European banks with a solid capital base and effective management.

He added, "If we mean this seriously, I think we need to accept that a German bank becoming the acquired party is a consequence of European consolidation."

Schweppe stated that the UniCredit-Commerzbank saga could last for months or even a year, due to the lengthy regulatory process and the need for negotiations among all stakeholders to reach a "satisfactory" resolution.