Germany Backs EU's Tough China Line With Historic Call for Plaza Accord-Style Currency Talks
In a striking signal of shifting geopolitical and economic winds, German Chancellor Friedrich Merz has publicly aligned Berlin with the European Union's increasingly hardline stance toward Beijing. Speaking at the European Council summit in Brussels, Merz declared that China's yuan is undervalued by as much as 30 percent — nearly double the International Monetary Fund's own estimate of roughly 16 percent — and called for structured multilateral talks to address what he described as deeply unfair trade practices. The move marks one of the most significant policy pivots in Germany's relationship with China in decades.
What Did Merz Actually Say?
Merz did not mince words. Standing before European leaders, he accused China of "flooding markets" through extensive state subsidies and what he described as the deliberate suppression of the yuan's value. In his view, a currency that is not freely convertible, combined with government-backed overcapacity in key industries, amounts to a systemic distortion of global trade — one that European manufacturers and workers ultimately pay the price for.
His central proposal was bold: a revival of Plaza Accord-style negotiations, a reference to the landmark 1985 agreement in which the United States, Japan, West Germany, France, and the United Kingdom coordinated a managed depreciation of the U.S. dollar against major currencies. Merz is essentially calling for a modern equivalent — a multilateral framework that would pressure China into allowing the yuan to appreciate toward a fairer market value.
The significance of this statement from a German chancellor cannot be overstated. Germany has historically been among the most China-friendly voices in Europe, driven by the enormous commercial interests of its automotive and industrial giants in the Chinese market. For Berlin to now publicly echo Brussels' tougher line is a meaningful realignment.
Understanding the Plaza Accord Reference
To appreciate what Merz is proposing, it helps to understand the original Plaza Accord. In September 1985, the G5 nations met at the Plaza Hotel in New York and agreed to intervene in currency markets to bring down the overvalued U.S. dollar. The accord was widely considered a success in rebalancing global trade flows, though it also contributed to Japan's subsequent asset bubble.
A new Plaza Accord targeting the yuan would be a far more complex undertaking. China is not a member of the G7, it maintains strict capital controls, and it has consistently rejected Western characterizations of the yuan as artificially suppressed. Beijing views currency management as a sovereign prerogative and has shown little appetite for externally imposed exchange-rate adjustments. Nevertheless, the symbolic weight of such a call from the leader of Europe's largest economy is considerable.
Why Germany's Position Has Changed
For years, Germany's political and business establishment resisted pressure from Washington and Brussels to take a harder line on China. The country's export-oriented economy, heavily dependent on sales of high-end vehicles and industrial machinery to Chinese consumers, made confrontation with Beijing politically and economically costly. Companies like Volkswagen, BMW, BASF, and Siemens all have deep roots in the Chinese market.
But the calculus has been shifting. Several factors have converged to push Germany toward a tougher position.
- Chinese overcapacity in electric vehicles: Chinese EV manufacturers, heavily subsidized by the state, have been rapidly gaining market share in Europe, threatening the heart of Germany's industrial base. The EU has already moved to impose additional tariffs on Chinese-made electric vehicles.
- Lessons from Russian dependency: Germany's painful experience of energy dependency on Russia following the invasion of Ukraine has made policymakers acutely sensitive to the risks of over-reliance on any single authoritarian state — including China.
- Broader EU consensus: The European Commission under Ursula von der Leyen has taken a consistently tougher stance on China's trade practices, and Merz appears determined to bring Germany into closer alignment with that consensus rather than play the role of Beijing's reluctant defender in Brussels.
- Domestic political pressure: German industrial unions and mid-sized manufacturers have grown increasingly vocal about the damage caused by cheap Chinese competition, giving politicians more room to push back against Beijing without losing domestic support.
The IMF Estimate vs. Merz's Figure
One detail in Merz's remarks that drew immediate attention was his figure of 30 percent undervaluation — substantially higher than the IMF's current estimate of around 16 percent. The IMF's assessment, published in its annual Article IV consultation with China, is itself contested and reflects a broad range of underlying assumptions. Merz's higher figure may reflect Germany's own economic modeling, or it may be a deliberate rhetorical escalation designed to signal urgency and frame the issue in stark terms ahead of any potential negotiations.
Economists have long debated the true extent of yuan undervaluation. The challenge is that China's capital controls make standard purchasing-power parity and market-based assessments difficult to calculate with precision. What is broadly agreed upon is that China's managed exchange-rate regime gives its exporters a structural cost advantage that is difficult for foreign competitors to offset through productivity gains alone.
What This Means for EU-China Trade Relations
Merz's remarks add momentum to a broader European rethinking of the relationship with China. The EU has been gradually moving toward what Brussels calls "de-risking" — reducing strategic vulnerabilities without fully decoupling from the Chinese economy. Trade defense instruments, investment screening mechanisms, and the ongoing electric vehicle tariff dispute are all part of that picture.
A formal push for currency negotiations, if it gains traction among other European leaders and potentially the United States, could represent a new and more confrontational chapter in that relationship. For Beijing, the message from Berlin is unmistakable: Europe's most China-friendly major economy is no longer willing to look the other way.
The Road Ahead
Whether Merz's Plaza Accord proposal gains any concrete traction remains to be seen. Convening a multilateral currency negotiation that includes China would require extraordinary diplomatic groundwork and a degree of Western unity that has often proved elusive. China would need to be brought to the table voluntarily, or the initiative risks becoming little more than a statement of intent.
Nevertheless, the symbolic importance of Germany's stance should not be underestimated. When Berlin speaks, Brussels listens — and Beijing does too. Merz's words mark a turning point in how Germany, and potentially all of Europe, frames its economic relationship with China in the years ahead.