PayPal troubleshooting: merchant only ships within US

We have a PayPal business account set up in the US and when we run tests for participants from Europe we get this error message: "The merchant only ships to addresses within the United States." (see image 1)

How can we solve the problem?

Unfortunately, PayPal has integrated an erroneous setting for one of the blocked payments options.
Please log into your PayPal business account and go to:
Account Settings => Payment Preferences

For the option "Blocked Payments" click on the "Update" link (see image 2).
Now, for the option "Block non-U.S. shipping addresses" choose the setting "Yes".

This solution is counter-intuitive, as you would expect the opposite to be true.

Please test your new settings by starting the payment process via ConfTool and PayPal.