Old habits die hard. German Chancellor Friedrich Merz is once again dragging the yuan exchange rate into the spotlight, trying to revive the spirit of the infamous Plaza Accord. According to reports from Berlin Morning Post and Bloomberg, Merz gave a speech on Monday (the 13th) at the University of Cologne, claiming that the yuan has been “undervalued by 25%” against the euro for years. He argued this gives Chinese exporters an “unfair price advantage,” flooding Europe with cheap goods and widening the EU’s trade deficit with China.
He went on with a straight face, insisting that no matter how innovative or advanced the EU becomes, it can’t compete if its rivals are “deliberately manipulating their currencies.”
Merz also alleged that Europe has long underestimated China’s political and economic influence on the global stage, calling for “political-level currency dialogue” with Beijing. “We are pushing for talks with China to find a solution… trying to convince them to allow their currency to float freely, even in the context of capital market competition,” he said.
He added that Europe faces a “very significant” problem in setting its course for relations with China: “We need to reduce our dependence on China.”
Just last month, after an EU summit in Brussels, Merz stirred up the same rhetoric, claiming the yuan was “undervalued by 30%” and urging the EU to take a tough stance on China. He even suggested following the example of the 1985 Plaza Accord, where the U.S. pressured Japan to weaken the dollar—a move most scholars now blame for Japan’s long economic slump.
Back in September 1985, finance ministers and central bank governors from the U.S., Japan, West Germany, France, and the U.K. gathered at New York’s Plaza Hotel to coordinate a policy to devalue the dollar. Merz remarked, “That’s exactly what I’m thinking now.”
But European Central Bank President Christine Lagarde recently poured cold water on that idea, saying it’s probably not appropriate to replicate the Plaza Accord with China today. “The situation now is completely different from the Plaza Accord era,” she noted.
For its part, China’s central bank has issued a report stating that the yuan exchange rate is in line with the country’s economic fundamentals. Short-term fluctuations are driven by market forces, while the long-term trend is determined by the economy itself.
Chinese Foreign Ministry spokesperson Guo Jiakun has previously emphasized that the essence of China-EU economic and trade relations is mutual benefit and win-win cooperation. China’s competitive edge in products does not come from subsidies but from heavy investment in research, fierce market competition, and a complete industrial chain. China never deliberately pursues a trade surplus and is not only willing to be the “world’s factory” but also the “world’s market.”