Scholz Targets Turnaround After Stumbling Start as German Leader

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(Bloomberg) -- During a high-profile visit to Kyiv, German Chancellor Olaf Scholz addressed the press only after counterparts from France, Italy and Romania, and for a group photo, he was positioned on the fringe despite providing more aid to Ukraine than the other countries combined.

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The optics in Kyiv weren’t isolated but reflect how Scholz is still struggling to find his place on the international stage after succeeding Angela Merkel in December. As host to a three-day summit of Group of Seven leaders that begins on Sunday, he gets a prime opportunity to start changing that.

At Schloss Elmau in the Bavarian Alps, the 64-year-old Social Democrat wants to secure more financial aid for Ukraine, set up a fund to help poor countries weather a food crisis, and launch an initiative to coordinate national efforts to combat global warming, which he’s dubbed the “Climate Club.”

Failure to show progress would add to the growing pile of evidence that critics say show he’s out of his depth.

As is customary for meetings of the world’s biggest industrial economies, Scholz has invited representatives from across the developing world. This time, the roster consists of leaders from India, Indonesia, South Africa, Senegal and Argentina. Scholz’s officials have insisted on calling them “partners” rather than “guests.”

Scholz won praise from US President Joe Biden at a bilateral meeting shortly before the summit’s start. “You’ve done an incredible job,” Biden told the chancellor, who beamed. “You’re one of our fastest and closest allies in the world.”

At the summit and beyond, Scholz’s goal is to broaden the alliance against Russia. The chancellor and his aides have been traveling across the globe in recent weeks to court other countries and push back against President Vladimir Putin’s claims that European sanctions, rather than Russia’s invasion, are to blame for the blockage of Ukrainian wheat shipments.

The most crucial issue facing Scholz is the standoff with Russia over gas. Putin has drastically squeezed supplies, prompting Berlin to take a step closer toward gas rationing on Thursday. The standoff risks an unprecedented disruption to Germany’s economy and leaves Scholz with even less room to maneuver. Caving in to Putin is hardly an option, but letting people freeze this winter isn’t either.

Read more: Putin Is Pushing Germany’s Economy to the Breaking Point

After securing a surprise election victory in September, the war in Ukraine hit just as his three-party coalition was finding its feet. His back and forth on weapons deliveries and the SPD’s tradition of engaging with Russia have weakened his position.

Scholz is a “quiet global leader who acts slowly and unspectacularly on the global stage,” hemmed in by his own quarrelsome party and an unwieldy coalition, said Daniela Schwarzer, executive director for Europe and Eurasia at the Open Society Foundations.

His Social Democrats lost two regional elections in May and are now third on the national level in most polls, behind the conservative bloc and the Greens, his junior coalition partner. Support for the pro-business Free Democrats, which control the powerful finance ministry, has fallen to less than 10%.

The domestic issues have affected Scholz’s ability to deliver on his international agenda. Shortly after Russia’s invasion of Ukraine, he dropped his usual reserve and vowed a “sea change” in German policy. The effort included a debt-financed 100 billion-euro ($105.5 billion) fund to modernize the country’s army and lift defense spending to 2% of economic output — as demanded by key allies for years.

While he won support from the opposition conservatives to enshrine the defense fund in the constitution, delivering on promises to take a more assertive role in world affairs has been choppy.

After reversing policy by agreeing to supply heavy weapons, his government offered to send PzH 2000 self-propelled howitzers in early May. They only arrived last week. A plan to send Gepard anti-aircraft vehicles remains stuck. Only 35% of Germany’s promised military aid had been delivered as of June 7, according to the Kiel Institute for the World Economy.

In an initiative that could undermine his environmental agenda, Germany is pushing for G-7 nations to walk back a commitment that would halt the financing of overseas fossil fuel projects by the end of the year, according to people familiar with the matter. The move would be a major reversal on tackling climate change.

Read more: Germany Pushes for G-7 Reversal on Fossil Fuels in Climate Blow

Some of Scholz’s stumbles are about style. The soft-spoken politician is more of a back-room operator who seeks to forge a consensus behind the scenes rather than impress with grand speeches and gestures, said a person close to the chancellor.

Scholz is leaving little to chance in the meeting with counterparts from the US, UK, Canada, France, Italy and Japan. The event is located at the same tranquil mountain resort that produced famous images of Merkel and former President Barack Obama in 2015. The remote setting also avoids the risk of the types of protests that marred a 2017 summit in Hamburg when Scholz was mayor.

But it remains to be seen if he can achieve anything tangible at the summit. When it comes to isolating Russia, German officials have already played down expectations that partner countries like India and South Africa would adopt a critical stance. European officials have also poured cold water on a US proposal to set a price cap on Russian oil.

Scholz has billed the event as an opportunity to start resetting the post-war system of rules-based international institutions, which has helped underpin German prosperity.

“It’s about building a new global peace order,” Scholz said in a speech last week in the Bavarian town of Tutzing. “We are at the very beginning of this global turning point.”

Scholz sees his Climate Club as a way forward. The goal is to create an alliance of countries willing to accept common rules and standards to fight global warming. If it makes progress, it would be a signature achievement.

Speaking to German business leaders on Tuesday, Scholz said such an institution is urgently needed to avoid a chaotic patchwork of national regulations. The risk would be new trade conflicts in which countries slap “green tariffs” on goods deemed less sustainable.

Scholz and Joerg Kukies, his top economic adviser, managed to get the Organisation for Economic Co-operation and Development, the International Monetary Fund and the World Bank on board to flank their efforts.

The chancellor is aware that gaining support from other industrialized economies as well as the likes of India, Indonesia and South Africa will take more than three days in the Alps.

“Elmau is in the mountains, but we certainly won’t be moving mountains there,” he said in his weekly video address on Saturday. “But we can make important decisions and prepare things that are worthwhile for all of us.”

(Updates with Biden comments in sixth paragraph.)

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