The pain of a limb already lost

Germany is suffering from a Phantomschmerz — a phantom limb pain. That is the term used by Sander Tordoir and Brad Setser in their May 20 report for the Centre for European Reform: the 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 supplied the weapon; Germany guided its hand.

China’s trade surplus with the EU reached $113 billion during the first four months of 2026, up from $91 billion a year earlier — nearly one billion dollars of European deficit per day. Once a net exporter of capital goods to China, Germany has now become a net importer. This should surprise no one: it is the outcome of twenty years of choices imposed by Berlin upon the continent.

The Price of Wandel durch Handel

On May 26, 2013, Angela Merkel welcomed Chinese Premier Li Keqiang to Berlin just as the European Commission was preparing to impose 47% tariffs on Chinese solar panels. France and Italy supported the measure. Before the cameras, Merkel promised Germany would do everything possible to block it — and she kept her word. The Commission backed down; Europe’s solar industry disappeared.

Today, China controls most of the value chain. The automakers Merkel sought to shield from Chinese retaliation are themselves collapsing: Volkswagen is eliminating thousands of jobs and considering opening its production lines to Chinese brands. German industry is now subcontracting its own replacement.

Wandel durch Handel — “change through trade” — functioned almost as a religion: interdependence with autocracies would eventually transform them. Berlin applied the doctrine first to Russia through Nord Stream — with consequences now well known — and then to China, with the same blindness. Because trade policy is an exclusive competence of the European Union, the entire European industrial base ends up sitting on an ejector seat every time Berlin blocks a tariff. Germany privatized the benefits of Chinese globalization while socializing its costs: moral hazard on a continental scale.

The Return of the Monetary Question

Let us remember. Between 2010 and 2015, Greece was suffocating. Wolfgang Schäuble answered with austerity; the Deutsche Bundesbank fought Outright Monetary Transactions, while Federal Constitutional Court of Germany declared it suspect. Greek GDP contracted by a quarter. As Athens choked, the European Central Bank accumulated €7.8 billion in profits on Greek debt alone, the reimbursement of which was delayed and bargained over. Berlin’s message was crystal clear: the ECB has only one mandate — price stability. Full stop.

Yet this dogma refuses to see the following. According to Goldman Sachs, the yuan is undervalued by 12% on the most trade-sensitive measure, and by as much as 25% once productivity differentials are incorporated. The exact figure matters little: even the lower bound exceeds what any sectoral tariff can offset. A strong euro against a compressed yuan taxes every European export and subsidizes every Chinese import. Responding with tariffs amounts to mopping up the ocean with a rag.

Major exporting powers do not hesitate to act: China manages the yuan through a controlled float, Switzerland maintained an EUR/CHF floor from 2011 to 2015, and Japan intervened on the yen in 2022. The instrument exists for the euro — Article 219 of the Treaty — but it requires unanimity. And no country has defended more consistently than Germany the idea that a currency exists only for prices, never for industry. The lever is not absent from European law; it is locked by German doctrine.

The Objection — and Its Reversal

Let us grant orthodoxy what it gets right. Weakening the euro is not cost-free: Europe pays for its energy in dollars, and a weaker currency raises the price of every barrel. German rigor therefore also protects real purchasing power. But the objection ultimately reverses upon itself: this same obsession deprived Europe of the very tool capable of correcting the imbalance at its root, condemning the continent to endure both the imported inflation of energy crises and the industrial deflation of the Chinese shock. By refusing to wield the exchange-rate weapon, Berlin lost on both fronts.

Solidarity Is Not Moral

There is a poetic — and terrible — justice in the fact that Germany now needs, in order to survive, everything that Schäuble, Jens Weidmann, and Merkel spent years fighting against. Europe will ultimately provide those instruments, because the alternative is disintegration. But Berlin must confront the lesson this crisis is teaching it.

European solidarity was never the charity that the strong grant to the weak, revocable according to circumstances. It is mutual insurance: one pays the premium while dominant, in order to rely on the coverage when one falls. Germany, which refused to pay its premium for twenty years, is discovering that it will now have to claim the policy.

On May 29, European commissioners will debate China. The mutualization rejected yesterday and demanded today is not a contradiction: it reveals the very nature of insurance. Solidarity is not moral; it is functional — and that is precisely why it is indecent to deny it to others while demanding it for oneself.