Opinion: A strong Euro is suffocating European industry

The ECB is clinging to a 2% inflation target at the cost of high interest rates and a strong Euro. However, by relentlessly fighting domestic inflation that is already under control while its economy remains limp, the ECB has allowed the single currency to appreciate against Asian currencies since 2020. The result: a structurally overvalued Euro that precludes any possibility of competitiveness both within and outside of Europe.

The Findings

Measured across the scope of manufactured and tradable goods (the only relevant aggregate for industrial competitiveness), the gap between the value of major Asian currencies and their theoretical equilibrium against the Euro is massive. For example, the IMF, despite its conservative stance, estimated in February 2026 that the Yuan was undervalued by 16% against a basket of currencies, while Goldman Sachs estimated the devaluation at 25% in December 2025.

Fig.: Over/undervaluation of currencies against the Euro - Tradable goods - Author's calculations and analysis

(Estimated deviation vs. PPP equilibrium for tradable goods - May 2026)

Sources: IMF External Sector Report, BIS (broad REER), OECD PPP for tradable goods, adjusted Big Mac indices

What Has Changed

The existence of undervalued currencies is not new. The Yuan has always been devalued without posing a major problem as long as China confined itself to basic industries. What has changed is the convergence of three unprecedented phenomena.

First, China is moving up the value chain. Solar panels, wind turbines, batteries, electric vehicles, machine tools, biotechnologies, generic drugs. These are indeed sectors where Europe once reigned supreme. China, with its increasing industrial expertise, a currency that is still structurally undervalued by 20% to 25%, massive subsidies, and systematic circumvention of intellectual property, is progressing where European know-how is being lost through successive outsourcing.

Second, the Asian response. To absorb the Chinese shock and preserve their market shares, Japan and Korea have allowed their currencies to devalue since 2020: -30% against the Euro for the Won, and -40% for the Yen. The Yen has reached its lowest level since 1970 according to the BIS. Toyota, Samsung, and Hyundai are regaining a decisive price advantage. This stands in contrast to European players who are paying the price for a competitive devaluation that Europe has, so far, failed to undertake.

Finally, the American pivot. Aware that their trade deficit reflects an overly strong Dollar, the United States has opted for protectionism, leaving Europe caught in a pincer movement between a devaluing Asia and a closing America.

The Swiss counter-example is not one, as China is not yet hunting on its turf

Some will point to the Swiss case, which remains prosperous despite a Swiss Franc that is overvalued by 10% to 15% against the Euro. However, the Helvetic model cannot be generalized; the main reason lies in a pharmaceutical industry that is still protected by patents (patents valid in OECD countries but ineffective in China and outside the OECD), a positioning in Luxury (notably watchmaking), and niche positioning in the machinery, electrical equipment, and metals industries, which China has not yet addressed. Finally, there is no guarantee that Swiss strongholds will not fall tomorrow, just as Germany's are currently falling after those in Southern Europe.

Where does the 40% price gap with China come from?

This 40% average price difference (higher in certain sectors) is broken down into several elements: currency undervaluation (~20%), labor cost disparity (~10%), subsidies (the recent OECD report - June 2026 - highlighted massive use by China, particularly in specific sectors), less stringent environmental standards, and finally the scale effect of the integrated industrial ecosystem (a market of 1.3 billion inhabitants), as well as the structural overcapacity of Chinese production.

In short, two-thirds of the price gap primarily stems from exchange rate policy: currency undervaluation and labor cost disparity, which also depends on the level of the currency.

Changing the Compass

Europe cannot continue to play a rigged game by clinging to a dogma designed for another world. Three levers are essential. Protect our market at a minimum in strategic sectors. Massively support our industries via the EIB and a European budget reconfigured for competitiveness. And break the taboo of the ECB's mandate to include competitiveness and employment alongside inflation, modeled on the Fed's dual mandate. The real issue is not the EUR/USD, which is already close to equilibrium. It is the 20-to-45-point decoupling against industrial Asian currencies and Europe's inability to respond. While we debate, the steamroller moves forward.

An opinion piece by Stéphane Faure, Chairman of Astyrian Patrimoine.