Scholz calls for swift EU-Mercosur free trade deal on first South America trip

Trip comes as Germany seeks to reduce reliance on China

German Chancellor Olaf Scholz, left, meets Argentina's President Alberto Fernandez in Buenos Aires. EPA

German Chancellor Olaf Scholz on Saturday urged a swift conclusion to talks on a free trade deal between the EU and the Mercosur South American trade bloc as he visited Buenos Aires at the start of his first tour of the region.

Seeking to reduce Germany's economic reliance on China, diversify its trade and strengthen relations with democracies worldwide, Mr Scholz is visiting Argentina, Chile and Brazil, all led by fellow leftists who came to power in the region's new “pink tide”.

Berlin wants to lower its dependence on China for minerals necessary to the energy transition, making resource-rich Latin America an important partner. The region's potential for renewable energy output is another attraction.

“There is great potential to further deepen our trade relations, and the possibilities that could come from the EU-Mercosur deal are obviously particularly significant,” Mr Scholz said as he spoke alongside Argentina's President Alberto Fernandez.

Mr Fernandez has blamed European protectionism for holding up the deal, agreed to in principle in 2019 but not ratified by national parliaments. EU ambassadors have said Brazil must take concrete steps to stop the destruction of the Amazon rainforest.

Berlin hopes that concern can be put aside with the election of Brazil's President Luiz Inacio Lula da Silva, who has promised to overhaul the country's climate policy. Mr Scholz will meet him on Monday at the end of his three-day tour.

The German Chancellor will become the first western leader to meet Mr Lula since his inauguration.

Russia's invasion of Ukraine, which caused an energy crisis in Germany, which relied heavily on Russian gas, increased awareness of the need to examine its economic reliance.

For Germany to reduce its reliance on China for minerals it will need to embrace sectors it has shied away from, a German government official travelling with Mr Scholz said.

“For example lithium mining — that's a challenging task, especially regarding the environment and social standards,” the official said.

Argentina and Chile sit on top of South America's “lithium triangle” which holds the world's largest trove of the ultralight battery metal.

About a dozen business executives — including the heads of Aurubis AG, Europe's largest copper producer, and energy company Wintershall Dea AG Dea — are accompanying Mr Scholz.

Mr Fernandez said he and Mr Scholz discussed the possibility of attracting German investment to the country's vast shale gas reserve, lithium deposits and green hydrogen production.

Wintershall Dea, for example, is part of a consortium that in September announced it was investing about $700 million to develop a gas project off the coast of Argentina's southernmost tip, Tierra del Fuego.

“Argentina has the potential to supply Europe with energy in the long term,” chief executive Mario Mehren said.