German Chancellor Merz, fickle as ever, fantasizes about replicating the "Plaza Accord" targeting Japan in the past: claims the renminbi is undervalued by 30% and accuses China of dumping products through hefty subsidies.

German Chancellor Friedrich Merz stated on Friday that the Chinese currency is undervalued by 30%, far exceeding the International Monetary Fund's estimate of "around 16%," signaling a significant shift in Berlin's economic relationship with Beijing.

Speaking after attending the EU summit in Brussels, Merz asserted that China is "dumping products onto the market" through "substantial subsidies," and emphasized that "over-subsidizing excess capacity" and "using non-convertible currencies" are "unacceptable."

These remarks represent one of the strongest statements Merz has made toward Beijing since becoming chancellor last year, touching upon a central issue in the debate over industrial overcapacity. In Europe, the exchange rate between the renminbi and the euro is widely seen as a primary reason behind the surge in Chinese exports, making Chinese goods cheaper for overseas buyers. This, in turn, has exacerbated the EU’s trade deficit with China, deeply frustrating European leaders concerned about the competitiveness of domestic manufacturers.

Merz cited the Plaza Accord as a model for addressing such issues. In 1985, due to concerns over the yen being undervalued, the United States and several European partners signed the accord with Japan. While frequently referenced in debates over U.S.-China trade tensions, the Plaza Accord is rarely mentioned in Europe.

Merz made these comments following a meeting of the 27 EU member state leaders discussing economic and trade relations with China. The summit ultimately authorized the European Commission to develop a new strategy to address what Brussels views as excessive expansion of Chinese industry.

Merz said the new tools would be unveiled at the next EU summit this October. The meeting followed a two-hour debate late Thursday, during which national leaders reached consensus that Europe must act more swiftly to respond to the ongoing widening of the EU’s trade deficit with China, driven by a surge in Chinese imports.

European Commission President von der Leyen delivered a 20-minute speech laying the groundwork for swift action. European Council President Costa and High Representative for Foreign Affairs and Security Policy Kallas also addressed the national leaders, followed by approximately one hour of national statements, with discussions continuing past midnight.

A diplomat familiar with the proceedings said the discussion lacked depth. "They didn’t go into specific tools in detail—more general calls that the situation is unacceptable and that we’re heading down a dangerous path," the diplomat noted. "This is exactly what von der Leyen wanted to hear. She has received the proper mandate to push forward."

According to reports by the South China Morning Post, however, several sources familiar with the discussions confirmed broad agreement among participants on the threat posed to European industry and the necessity for the European Commission to devise new responses.

During dinner, Merz spoke twice—once with a firm tone, and once urging caution. Yet by the end of the summit, he appeared to support a more proactive strategy. Insiders say Merz was convinced by research indicating the renminbi is undervalued by nearly one-third and increasingly aware of the challenge this poses to German industry.

Spanish Prime Minister Sánchez publicly and privately opposed a tough policy toward China. Before the EU summit, Sánchez referred to Beijing as a "potential ally." During closed-door sessions, he urged the EU to proceed with caution regarding next steps.

According to diplomatic sources, the European Commission is expected to rapidly develop new measures to counteract the impact of Chinese trade. Preparations have already begun. Von der Leyen has not received specific instructions on the number or nature of the new tools, but the Commission has started drafting a mandatory supplier diversification instrument and another tool utilizing tariffs to address industrial overcapacity.

After the summit, von der Leyen emphasized that these tools would "not target any specific country." Sources confirm that none of the proposed tools will explicitly target China, as the Commission aims to remain within the framework of the World Trade Organization. However, national leaders clearly stated that any new measures must operate significantly faster than existing EU trade instruments.

The European Commission has also been tasked with exploring Belgian Prime Minister De Croo’s concept of a "solidarity mechanism" to ensure member states are not subjected to retaliation from China. According to informed officials, this could include EU funding for companies affected by retaliatory measures. "The idea is that benefits and losses should be shared collectively—some form of solidarity mechanism."

A diplomat noted, "Due to the unique structure of Europe’s economy, some member states may face greater impacts than others." These proposals may be unveiled in the EU’s annual State of the Union address in September.

Previously, von der Leyen used this speech to announce an investigation into Chinese electric vehicle subsidies and to take measures banning products made using forced labor.

Source: rfi

Original: toutiao.com/article/1868539087666188/

Disclaimer: This article reflects the personal views of the author