The pain of a limb already lost

Germany is suffering from a Phantomschmerz — phantom limb pain. That is the term used by economists Sander Tordoir and Brad Setser in their report published on May 20 for the Centre for European Reform. “Pain is felt where something vital has already been lost. That missing limb is export demand, amputated by Chinese pressure on Germany’s industrial base.” The diagnosis is accurate, but incomplete. China may have supplied the weapon, but it was Germany that guided its hand.

China’s trade surplus with the EU reached $113 billion in the first four months of 2026, compared with $91 billion a year earlier — roughly one billion dollars of European deficit per day. Germany, once a net exporter of capital goods to China, has now become a net importer. But this should not surprise us, for this is the result of twenty years of political choices imposed by Berlin upon the continent.

The price of Wandel durch Handel

On May 26, 2013, Angela Merkel welcomed Chinese Premier Li Keqiang in Berlin. At the same moment, the European Commission was preparing to impose 47% tariffs on Chinese solar panels. France and Italy supported the measure, except that, before the cameras, Merkel declared: “Germany will do everything in its power to ensure that this does not lead to permanent tariffs.” She obviously kept her word, as the Commission backed down, effectively wiping out Europe’s solar industry.

Today, China controls most of the global value chain. Those same German carmakers Merkel sought to shield from potential Chinese retaliation now find themselves collapsing in 2026. Volkswagen has eliminated thousands of jobs and is considering opening its European production lines to Chinese manufacturers.

Fact: German industry is now subcontracting its own replacement.

Germany theorized its own decline through Wandel durch Handel, the charitable doctrine of “change through trade,” according to which interdependence with authoritarian regimes would ultimately transform them.

Germany applied this doctrine to Russia through Nord Stream. We know the outcome. It applied it to China with the same blindness.

Yet Berlin’s failure goes beyond mere naivety.

Because trade policy is an exclusive competence of the European Union, it is European industry as a whole that ends up sitting on an ejector seat whenever Berlin blocks tariffs.

Fact: Germany privatized the gains of Chinese globalization while socializing its costs across the entire Union. In other words: it institutionalized continental moral hazard.

The return of the monetary question

The return of History. Let us remember the years between 2010 and 2015, when Greece was drowning and pleading for an expanded role for the ECB.

Wolfgang Schäuble responded with austerity.
The Bundesbank fought Draghi’s OMT program.
Karlsruhe declared it suspect.

Greek GDP contracted by a quarter. As Athens suffocated, the ECB accumulated — through its SMP and ANFA programs — €7.8 billion in profits on Greek debt alone, profits whose transfer back to Greece was delayed, bargained over, and conditioned.

At the same time, Berlin proposed expelling Greece with one single message: the ECB has only one mandate — price stability. Full stop.

Fact: the Chinese yuan is undervalued by 25% (according to Goldman Sachs). The IMF, for its part, describes this undervaluation as a driver of global imbalance.

No tariff can offset a structural exchange-rate advantage of this magnitude. Yet the only adequate response to the China Shock is precisely what German orthodoxy has rendered unthinkable. Responding to a monetary weapon with trade instruments is like trying to mop up the ocean with a rag.

Concretely, an active exchange-rate policy would consist, for the ECB acting under a mandate from the Council, in intervening directly on currency markets — that is, selling euros against dollars or yuan in order deliberately to weaken the euro’s effective exchange rate. The objective would not be cosmetic: an overvalued euro against an artificially suppressed yuan amounts to imposing an invisible tax on every European export and a subsidy on every Chinese import.

Correcting this imbalance through exchange-rate policy, rather than product-by-product tariffs, would have the advantage of acting across all trade flows at once — whereas tariffs on electric vehicles still leave steel, batteries, and industrial equipment untouched.

This is precisely what major exporting powers do without hesitation. China manages the yuan through a controlled floating regime, complete with daily fluctuation bands and massive interventions by the PBOC. Switzerland — despite being a temple of monetary orthodoxy — maintained an EUR/CHF floor for three years between 2011 and 2015 precisely to protect its export industry. Even Japan intervened directly in currency markets in 2022 to support the yen.

Europe, by contrast, forbids itself even the discussion.

The instrument exists: Article 219 of the Treaty authorizes the Council to conduct a genuine exchange-rate policy for the euro. Yet it requires unanimity, and no country has defended more consistently than Germany the doctrine according to which a currency exists only for price stability — never for industry. This lever is not absent from European law; it is locked away by German doctrine.

Fact: to Schäuble, who demanded austerity in the name of monetary rigor, History now presents the bill in the form of Chinese containers.

Solidarity is not moral

There is a poetic — and terrible — justice in the fact that Germany now needs, for its own survival, everything Schäuble, Weidmann, and Merkel once fought against.

Europe will eventually provide these instruments, because the alternative is disintegration. But we are entitled to demand that Berlin confront the lesson this crisis is teaching it.

For European solidarity was never what Germany believed it to be: a form of charity granted by the strong to the weak and revocable according to circumstance.

Fact: European solidarity is mutual insurance. One pays the premium while dominant in order to rely upon it when one falls.

Germany, which refused to pay that premium for twenty years, is now discovering that it will have to rely on that insurance.

On May 29, European commissioners will debate the Chinese question, and it is time for Berlin to understand that the mutualization it rejected while dominant and now demands while vulnerable is not a contradiction.

Fact: solidarity has never been moral. It has always been functional.

That is precisely why it is indecent to deny it to others while demanding it for oneself.