February 6, 2010 / 12:21 AM / 9 years ago

G7 focuses on Europe debt

IQALUIT, Canada (Reuters) - Finance chiefs from the world’s rich powers focused on the euro zone’s debt crisis at an Arctic summit and a top official said Europe was determined to solve its problems without the International Monetary Fund.

U.S. Treasury Secretary Tim Geithner (L) and Federal Reserve Chairman Ben Bernanke take part in a meeting at the G7 finance ministers' meeting in Iqaluit, Nunavut February 5, 2010. REUTERS/Chris Wattie

“We talked about Greece, Portugal and Spain and we told our partners we had to solve the problem ourselves without the help of the IMF,” Eurogroup chair Jean-Claude Juncker told Reuters on Saturday, the second day of a meeting of finance leaders from the Group of Seven rich industrialized nations.

Euro zone countries like Greece, Spain and Portugal are under increasing pressure to bring spending under control.

Stock markets tumbled to three-month lows on Friday as fears rose about a huge bailout and the possible destabilization of the 16-country euro zone.

IMF chief Dominique Strauss-Kahn, who is attending the G7 meetings in Canada’s remote north, said last week his institution was ready to help Greece if asked.

Guenther Oettinger, a German Conservative leader, warned in a Saturday newspaper interview that the euro currency was “in danger of becoming unstable,” although his comments contradicted those from Finance Minister Wolfgang Schaeuble.

“The euro will stay stable,” Schaeuble told reporters on Friday. “Markets always tend to overreact.”

Greece, saddled with a budget deficit of nearly 13 percent of gross domestic product, is due to announce next week how it plans to raise taxes and control public pay.

European officials hope the austerity plan will fend off any need for a bailout of the country.

Despite the concerns among investors over the huge budget deficits racked up to help fight the financial crisis, including in the United States, the G7 countries will stick to their stimulus programs to help the global economic recovery, Canadian Finance Minister Jim Flaherty said on Friday.

The G7 meeting is possibly the last standalone gathering of a group that long dominated the international financial scene. The rise of China and other emerging market heavyweights has left the G7 less able to manage the global economy.

Local Inuit residents built two igloos in the parking lot outside the local legislative building as a greeting to the officials inside who were discussing the recovery of the global economy and how to fix the world’s banking system.

“I don’t have anything against these G7 people or anything. We want to welcome them,” said Pitseolak Alainga, working in sub-zero temperatures with friends and family, including an 80-year-old matriarch with her children and grandchildren.

LET’S TALK BANKS

The discussions are set to focus on problems in the world financial sector.

President Barack Obama stunned the banking industry last month when he proposed preventing banks from lucrative but risky trading and limiting their size of banks.

Britain’s finance minister Alistair Darling questioned some aspects of Obama’s plan, saying risky financial activity would shift from banks to other institutions. He stressed the world should agree quickly on areas where there is common ground.

At their meeting on Saturday, the G7 officials agreed that banks must contribute toward the cost of dealing with the financial crisis but have not agreed on what specific instruments the banks should use, a German official said.

Britain has announced a 50 percent levy on large bonuses at banks to help cover the cost of the crisis and Obama in January proposed a fee on the largest financial companies.

The G7 is also discussing its own future role in a world where the larger Group of 20 is now seen as the primary forum for discussions.

Possibilities include meeting only on the sidelines of larger international gatherings, as well as keeping the group as a separate entity, Japanese Finance Minister Naoto Kan said after Friday’s talks.

Kan said France circulated its own proposal on G7 reform but that no conclusion was reached at the working dinner.

Slideshow (11 Images)

China has also been a focus for the talks, although it’s an issue that might be better discussed in the broader G20 — a group that includes China along with other big emerging markets like Russia and Brazil.

“G7 interest on China is potentially strong. But it seemed like everyone was holding back a bit about talking about China with each other,” said Kan.

The official line has been that the group will not issue a communique. But one G7 official told Reuters some of the European officials were concerned about not issuing a communique because they feel the market angst in Europe over Greek’s debt situation merits one.

Additional reporting by members of the Reuters reporting team in Iqaluit, Writing by Janet Guttsman, Editing by Chizu Nomiyama

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