German Chancellor Friedrich Merz has urged Plaza Accord-style negotiations on the yuan, stating that China's currency is undervalued by 30 percent and is fueling industrial overcapacity, reports Hong Kong's South China Morning Post.

Speaking after a European Council summit in Brussels, Mr. Merz emphasized that China is flooding markets with subsidized goods and an undervalued currency, which puts European manufacturers at risk. His remarks mark a significant shift in Berlin's stance toward Beijing.

EU leaders have mandated the European Commission to devise new tools to counter China's industrial excesses, including a diversification instrument aimed at reducing supply chain dependencies. Commission President Ursula von der Leyen noted that companies have been too slow to de-risk.

Ms. von der Leyen pointed to a 45 percent rise in Chinese shipments to Europe last year as unsustainable. She stated that new measures would be country-agnostic but designed to work faster than existing trade defenses.

Mr. Merz indicated that the new tools would be presented at the October summit. He cited research showing that the yuan was devalued by nearly one-third, posing a major challenge to German industry.

Spanish Prime Minister Pedro Sanchez emerged as the main dissenter, describing Beijing as a potential ally and urging caution. Diplomats indicated that the Commission is expected to move quickly, with preparations already underway for instruments including supplier diversification and tariffs.

Belgian Prime Minister Bart De Wever called for a solidarity mechanism to shield member states from potential Chinese retaliation, suggesting that EU funds could be allocated to affected businesses. The tools could be unveiled during September's State of the EU address.