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German Chancellor Friedrich Merz shook the table this week by saying Europe should open talks about the yuan — even pointing to the 1985 Plaza Accord as a model. That single line sent markets a little twitchy, Brussels into a brainstorming sprint, and Beijing into its usual chorus of outrage. Whether you cheer or groan, Merz has put the central question on the table: is Europe willing to treat China’s cheap exports and state-backed excess capacity like the economic problem they are?
Merz’s Plaza Accord gambit: brave talk or political theater?
Chancellor Friedrich Merz said the renminbi is substantially undervalued and floated the idea of a Plaza‑style multilateral conversation. He cited figures around 20–30 percent and linked that gap to the EU’s huge goods deficit with China. The numbers are stark: Eurostat shows EU imports from China far outpace exports, creating a deficit that has political cost. Merz’s move was diplomatic and deliberate — he raised it at the European Council and in G7 circles — and that matters. Talking about the yuan puts pressure on China in a way tariffs sometimes cannot, even if a literal replay of 1985 is unlikely.
Why currency talk matters — and why it won’t be simple
There is a grain of truth in Merz’s point: currency levels affect prices and trade flows. Even the ECB’s Christine Lagarde said the “currency aspect” of global imbalances deserves discussion, though she warned that the 1985 Plaza Accord can’t simply be copied today. That warning is real. China is not 1985 Japan — it controls capital flows, runs a much bigger economy, and plays geopolitics with its trade tools. IMF and ECB work usually finds smaller misalignments than Merz’s headline numbers, but that difference doesn’t erase the problem. The yuan’s valuation is one ingredient in a recipe of subsidies, overcapacity, and unfair trade practices that are hollowing out European industry.
Beijing’s predictable pushback
State‑linked outlets immediately framed Merz’s words as a political provocation. The Global Times called a new Plaza Accord a “pretext for oppression” and warned Europe off. That’s the script we should expect: a mix of righteous offense, selective history, and threats of countermeasures. Beijing’s media response is not just bluster. It signals the diplomatic headwinds Brussels will face if it pursues tougher action. A modern Plaza Accord would be hard to pull off — and likely to produce sharp retaliation if it ever looked like coordinated Western pressure on exchange rates.
Tough talk is fine — but real tools matter
Here’s the conservative bottom line: raising the currency issue wakes people up, but it won’t repair supply chains or revive factories. Europe and like‑minded partners must line up practical tools — high enough tariffs to blunt dumped goods, strict anti‑subsidy enforcement, procurement rules that favor domestic producers, and subsidy screens to stop unfair state aid. Merz did the useful work of breaking political taboos. Now comes the harder part: turning talk into steel‑toe policy. If Europe wants industry and jobs back, it should stop treating these problems like polite academic debates and start treating them like the economic security threats they are.
