There’s a darker mood at this year’s G-7 meeting in the Bavarian Alps over US President Joe Biden’s faltering popularity and the repeated shocks to the global economy from Russia’s war. At the same time, some of the leaders who in past summits squabbled over Brexit and clashed over defense accords are now all aligned in their pledge to support Ukraine. They are exploring using the income from tariffs imposed on Russia to finance Ukraine's reconstruction, according to a draft declaration we saw. Another big topic on today's agenda will be food security as prices of commodities continue to rise and key goods remain stuck in Ukraine. The summit will conclude tomorrow with a discussion on a mechanism to limit Russia’s energy revenue and how to mitigate surging inflation.

—Chiara Albanese and Kevin Whitelaw

What’s Happening

Sintra Retreat | ECB policy makers gather on a Portuguese hillside today with the sinking feeling that their rush to tackle the inflation shock they failed to forecast risks both a recession and echoes of the euro area’s sovereign debt crisis. Meanwhile, here’s an inside look at how ECB President Christine Lagarde engineered a fix to the euro zone’s most alarming debt turmoil since the pandemic struck.

Russia Default | Russia defaulted on its foreign-currency sovereign debt for the first time in a century, the culmination of ever-tougher Western sanctions that shut payment routes to overseas creditors.

Gas Test | EU unity is increasingly likely to be put to the test as Moscow steadily reduces gas supplies. Diplomats tell us the bloc will focus on risk preparedness when energy ministers meet today in Luxembourg. Governments are also poised for a fight over the the size of a fund designed to cushion some consumers from costs in a new carbon market, with France to propose limiting its size as part of a deal on an ambitious climate plan for 2030, according to our sources.

Breaking Point | Tremors are rippling through the EU’s largest economy as it grapples with the real threat of a Russian gas cut-off. For decades, Germany has prospered from cheap gas but now the risks extend beyond just a possible recession to a winter of freezing homes and shuttered factories. Here’s what Germany could face. 

Talking Hydrogen | Germany and the United Arab Emirates will hold further talks on hydrogen and clean energy this week as the European country seeks long-term solutions to wean itself off Russian gas. A UAE delegation of government officials and representatives of Abu Dhabi-based energy firms Adnoc and Masdar will travel to Germany tomorrow.

German Reboot | Still struggling to emerge from his predecessor’s shadow, Chancellor Olaf Scholz is aiming to use the G-7 summit to find his place on the world stage. He wants to 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.” 

In Case You Missed It

Rutte’s Remarks | Dutch Prime Minister Mark Rutte told us in an interview that Italy should take charge of managing the cost of its debt in financial markets. The remarks indicate reluctance to extend support to prevent Italy from slipping into a sovereign debt crisis. Also read what he said about isolating China and increasing output from the Groningen gas field.

Travel Chaos | A wave of airline strikes and flight cancellations is deepening Europe’s transport crisis, disrupting travel plans just as the region’s peak summer season gets under way. Walkouts in coming days at Ryanair Holdings Plc, EasyJet Plc, British Airways and Aeroports de Paris will add to the turmoil. 

Nuclear Restart | Negotiations between the US and Iran to revive the 2015 nuclear deal will restart in the “coming days,” according to Josep Borrell, the EU’s chief diplomat. The talks will be indirect, with the EU acting as a mediator, and take place in a Persian Gulf country, Iranian media quoted Borrell as saying,

French Reshuffle | French President Emmanuel Macron, whose party lost its outright majority in the lower house of Parliament a week ago, asked Prime Minister Elisabeth Borne to form a new cabinet by early July and sound out lawmakers from other parties about reforms.

Chart of the Day

Inflation in the euro area probably hit yet another record this month, with economists predicting data scheduled for Friday to show an 8.5% reading.
National figures are due earlier in the week, with Spanish and German readings both due to hit -- and possibly create more unease -- on the final day of the ECB’s Sintra gathering on Wednesday.

Today’s Agenda

All times CET

• 1 p.m. NATO chief Jens Stoltenberg holds a news conference ahead of the Madrid summit
• Belgian Prime Minister Alexander de Croo, European Parliament President Roberta Metsola, EU climate chief Frans Timmermans, NATO chief Jens Stoltenberg, and Latvian Defense Minister Artis Pabriks speak at the GMF's Brussels Forum
• G-7 summit continues in Bavarian Alps in Germany
• 6:15 p.m. EU energy ministers hold news conference after meeting in Luxembourg

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