The Ukraine crisis erupted the very month – December – when a politician who had almost zero profile outside his native Germany, and scant experience in international relations, replaced Angela Merkel as chancellor of Europe’s economic powerhouse. Yet Olaf Scholz seemed to pay little attention to Ukraine even as his European and NATO allies grew ever more agitated.
It was early February before the message finally sunk in that Europe was on the verge of a possibly savage war on its eastern frontier; only then did Mr. Scholz swing into action.
He dashed to Washington to see U.S. President Joe Biden, Moscow to see Russian President Vladimir Putin – the devil himself, in the West’s view – and Kyiv, the Ukrainian capital that fears it will be blown apart and overrun with Russian soldiers.
Those trips achieved no diplomatic breakthroughs, and the Washington trip kept everyone guessing whether Germany was really prepared to punish Russia in the event of war, which finally came on Thursday morning, when Mr. Putin announced the attack on Ukraine. But at least they showed the newbie chancellor was engaged.
His big unity move was yet to come, one that would finally bury the accusation that was often levelled against him in the Western media that he was the “weak link” in the anti-Putin alliance. On Tuesday in Berlin, Mr. Scholz announced that he would kill the certification process for the new Nord Stream 2 natural gas pipeline, which travels from Russia to northeast Germany (Mr. Biden later announced sanctions on the pipeline at its Russian owners).
The US$11-billion pipeline is completed but has yet to deliver any gas. Were it to be operational, it would double the export capacity of Gazprom, the Kremlin-controlled gas giant that holds a monopoly on exports, to Germany. The pipeline takes the same route as Nord Stream 1, which started delivering gas to Germany in 2011.
The news that Mr. Scholz would halt Nord Stream 2 hit like a bombshell, striking at the very heart of Russia’s apparent effort to make Europe in general and Germany in particular entirely captive to Russian gas exports – a scenario that had scared the White House and other Western democracies. They feared Mr. Putin could use energy dependency to blackmail his European clients.
“I think what we are seeing now is that Germany cannot be accused of being the weak link now,” Florian Ranft, head of international affairs at the Berlin think tank Das Progressive Zentrum, said in an interview. “Scholz has returned Germany to the international framework.”
Mr. Scholz’s pipeline move carried significance beyond showing that Germany, contrary to appearances, was a fully paid-up member of the Western alliance. It also showed Germany was prepared to pay a potentially heavy economic price to confront Russia, which could retaliate by turning off the gas taps to already gas-starved Germany. Indeed, Gazprom’s reduction of gas sent to the spot, or non-contract, market in recent months sent prices soaring to record levels.
If painful prices were not risk enough, Mr. Scholz may have to rethink one of the centrepieces of his economic and social vision for Germany – the creation of a sustainable, low-carbon economy that will leave no one behind.
The question of how he will achieve that goal became all the more pressing this week.
Germany is getting rid of its nuclear fleet and has vowed to close its dirty coal burners. But its large renewable-energy system, so far, has been incapable of filling the gap. Now, with war in Ukraine, Germany faces a potentially severe shortage of its transition fuel – the gas required to buy it years, perhaps decades, of time while it expands its renewable-energy network.
“The transition is not possible without gas – he needs Russian gas,” said Mark Schieritz, the economics correspondent of Germany weekly newspaper Die Ziet, who wrote a book on Mr. Scholz that was published earlier this month.
Olaf Scholz probably never imagined his baptism of fire would happen so early in his reign as Chancellor.
In the federal elections last September – the first in 16 years where the Christian Democrat Ms. Merkel did not seek re-election – Mr. Olaf’s Social Democratic Party (SPD) placed first with its best result since 2002, but failed to win enough seats to form a government. After an autumn of torturous negotiations, he formed an unlikely three-party “traffic light” coalition with the Greens and the liberal Free Democrats. He entered the Bundestag as chancellor on Dec. 8.
At the time, the 63-year-old Hamburg native and son of textile workers appeared to have no catastrophes to deal with. Omicron had yet to hit hard, the economy seemed on the mend after COVID-19′s wrecking-ball treatment in 2020 and the geopolitical tensions over Ukraine had barely entered the public consciousness.
Or apparently his own, for that matter. “The three-party coalition was busy forming and setting its agenda for the new government,” Mr. Ranft said. “Then, not long later, the Omicron variant hit and consumed all of the resources of his government. I don’t think there was pressure on him to react quickly to the Ukraine situation.”
But by late January, as Russia amassed more than 100,000 troops on the borders of Ukraine, the crisis became impossible to ignore and Mr. Scholz switched gears as the West began to talk about hitting Russia with sanctions. But Mr. Scholz declined to say whether he would include Nord Stream 2 in Germany’s potential sanctions arsenal, even though Mr. Biden said the pipeline was a goner if Mr. Putin punched the invade button.
The question is whether Mr. Scholz always knew the pipeline would land in the sanctions package or whether it was a last-minute decision as the pressure on him to show his hand rose by the day, then soared early this week, when Mr. Putin formally recognized the independence of Donetsk and Luhansk, the two breakaway republics in Eastern Ukraine.
Certainly Mr. Scholz, like Ms. Merkel, has a reputation for being cautious, mulling his options carefully on even fast-moving files before making a decision. “He does not speak out a lot, even people in his party often do not know how he thinks and feels,” Gesine Schwan, an SPD member, two-time candidate for president of Germany and retired political-science professor, said in an interview. “He always takes his time. He avoids risks that are not necessary.”
In other words, it appears he killed the Nord Stream 2 certification process when the political risks of not doing so outweighed the practical risks of leaving the country short of gas.
“The German chancellor has traditionally been very cautious to not take a clear position on Nord Stream 2,” said Daniela Schwarzer, executive director of Europe and Eurasia for the Open Society Foundations. “However, when it became clear that the attempts to negotiate de-escalation with Putin failed, he aligned with the U.S. and most European partners, first on deterrence, then on the actual sanctioning. The move on Nord Stream 2 is important as European partners, the U.S. and most of all Ukraine saw it as a major mistake, playing into Putin’s hands.”
Mr. Scholz has been in difficult situations in the past. They include the financial crisis of 2008 and 2009, when he was labour minister, the riot-stricken G20 summit in Hamburg in 2017 (when he was the city’s mayor) and the depths of the pandemic, when, as finance minister in Ms. Merkel’s last government, he had to find ways to keep the economy alive and avoid mass layoffs.
His performances in these events – some praised, others criticized – made him a household name in Germany, though not outside the country, nor was he considered the natural replacement for Ms. Merkel.
Indeed, the SPD was considered an ailing party with no star candidate for the job. “He really didn’t leave his mark anywhere,” said Hugh Bronson, the German-British member of the state parliament of Berlin for the right-wing Alternative fur Deutschland (AfD) party. “But everyone underestimated him and the conservatives running a weak candidate in the election certainly helped him.”
Ms. Schwan disagrees that Mr. Scholz had an undistinguished career. She said he first made his mark in the financial crisis when he pioneered the kurzarbeit – short-time work – system that allowed Germany’s biggest employers to avoid mass layoffs. Instead, employees’ work hours were drastically reduced, with the government paying 60 per cent of their wages. “This system helped the economy recovery very well,” she said.
The system was copied in other countries and was used in the pandemic in Germany and elsewhere.
A black mark came when, as mayor of Hamburg, he was accused of allowing protests to get out hand at the G20 summit, where hundreds of police, who deployed water cannons and tear gas, and demonstrators were wounded. He resisted calls for his resignation from Ms. Merkel’s party and the AfD and later apologized for the mess.
As finance minister during the pandemic, he ignored the Merkel government’s traditional fear of running fat deficits. He implemented a €130-billion stimulus package and oversaw the European Union’s launch of the €750-billion Next Generation recovery fund. As the ultimate head of the Germany’s financial oversight office, he took some heat – but denied any responsibility – for the infamous Wirecard scandal. The company imploded in 2020 after admitting that some €1.9-billion supposedly held in trust accounts did not exist.
The Ukraine crisis came at precisely the wrong time for Germany, which has a highly aggressive goal to reach net-zero emissions by 2045 – half a decade before most countries.
Not only that, Mr. Scholz wants to achieve that goal in the fairest way possible for the economy and its employees. “His main interest is economic and social transformation,” said Mr. Schieritz, the author of the book on Mr. Scholz. “He’s not a radical socialist or a Green, but he wants to make sure no one is left behind.”
Germany needs gas to replace the power-generating capacity that will go missing when the last of Germany’s nuclear plants close later this year and the coal burners are phased out. But with Nord Stream 2 not delivering gas any time soon – perhaps never, now that an invasion of Ukraine is underway – he will have to scramble to find other gas supplies, which won’t be easy, or reduce gas demand, which might be harder still.
The quickest potential source is liquefied natural gas (LNG) from the United States or Qatar – two of the fuel’s three biggest producers (the third is Australia). But there is little surplus LNG available, since most of the fuel is already committed to long-term contracts and LNG production plants are running flat out, or close to it. Germany does not even have a LNG import terminal – an indication of how confident it was that Russian gas imports would be reliable forever.
They may not be. Through sanctions or countersanctions, possible war damage to the pipelines that run from Russia through Ukraine and into Europe, the cheap Russian gas that powered the Germany economy for decades, turning it into an industrial superpower, is no longer a sure thing. Virtually overnight, a long-time energy asset – gas – has become a potential energy liability for Germany. Simply keeping the lights on, not the transition to a sustainable economy, may soon emerge as Mr. Scholz’s greatest challenge.
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