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## Overview German Chancellor Friedrich Merz signalled a significant shift in Berlin's approach to China in mid-2026, publicly calling for Plaza Accord-style multilateral currency negotiations targeting the Chinese yuan, which Merz said was undervalued by 30% — substantially above the IMF's estimate of approximately 16% (SCMP). ## Merz's Statements Speaking in Brussels following a European Council summit, Merz said: - China was "flooding markets" through "high subsidies" (SCMP) - China's use of "subsidising overcapacities" combined with "a currency that isn't convertible freely … is not" acceptable in open trade (SCMP) - Germany supports EU's "tough China line" on trade and currency (SCMP) ## The Plaza Accord Reference The 1985 Plaza Accord involved the US, Japan, West Germany, France, and the UK agreeing to depreciate the US dollar relative to the Japanese yen and German mark through coordinated central bank intervention. Merz's invocation of this framework suggests Germany is pushing for a multilateral diplomatic mechanism to force yuan appreciation — a significant geopolitical escalation in EU-China trade relations. ## Significance of Germany's Shift Historically, Germany has been the most China-accommodating major EU economy due to its deep automotive and industrial export dependence on the Chinese market. Merz's hardline positioning represents a potential end to Berlin's role as a moderating force within EU-China relations. ## Implications For legal and financial advisors: - May accelerate EU tariffs on Chinese industrial goods, electric vehicles, and manufactured products - Affects German multinationals (Volkswagen, BMW, BASF, Siemens) with major China exposure - A multilateral currency mechanism targeting the yuan would be deeply disruptive to global FX markets - Connects to EU-wide debates on Chinese EV tariffs and the broader 'China Shock 2.0' narrative - IMF's lower 16% estimate vs. Merz's 30% figure creates diplomatic friction over the factual predicate for any action