Euro zone seeks to calm Greek crisis fears at G7

The euro zone's top finance officials sought on Saturday to calm concerns about a deep budget crisis that has roiled financial markets and raised questions about the future of the single currency group.

After a two-day meeting of finance ministers and central bankers from the G7 industrialized nations, European Central Bank President Jean-Claude Trichet issued a statement to address fears that Greece's debts are out of control.

Trichet said he believed Greece would meet tough new belt-tightening targets.

We expect and we are confident that the Greek government will take all the decisions that will permit it to reach that goal that I reiterated, Trichet said in the statement.

But markets have been stumbling for weeks on concerns about Greece, and not everyone was convinced.

Trichet's comments are unlikely to have any significant impact on the market on Monday, said Michael Woolfolk, Senior Currency Strategist at Bank of New York Mellon in New York.

What I think is needed is an agreement on behalf of the EU to provide further support for Greece to further ensure that it doesn't default.

Treasury Secretary Timothy Geithner said the Europeans gave the G7 a very comprehensive review of the Greek austerity program. They made clear to us they will manage this with great care, Geithner told reporters.

Finance chiefs from the world's rich powers met in the town of Iqaluit, in Canada's remote Arctic north, on Friday and Saturday to renew a pledge to keep their stimulus plans in place while a global economic recovery builds, and to discuss efforts to reform global banking.

Geithner said the G7 had underscored its commitment to reinforcing and strengthening the economic recovery. Canadian Finance Minister Jim Flaherty said the global economy was improving but still needed nurturing by governments.

We do not have a firmly established recovery yet, but there are signs, he told reporters.

We need to continue to deliver the stimulus to which we are committed and begin to look ahead to exit strategies and to move to a more sustainable fiscal track.

After last week's nervousness in financial markets around the world, the European debt crisis quickly rose to the top of the agenda at the meeting.

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

The euro currency fell on Friday to its lowest level against the dollar in 8-1/2 months and stock markets touched three-month lows as fears rose about a huge bailout and the possible destabilization of the 16-country euro zone.

International Monetary Fund chief Dominique Strauss-Kahn, who attended the G7 meeting, said last week his institution was ready to help Greece if asked.

Jean-Claude Juncker, chairman of the Eurogroup of euro zone finance ministers, told Reuters IMF help would not be needed.

We, the representatives of the euro area, have made it clear that the situation in Greece is serious, and that the problem will be resolved, Juncker later told reporters.

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

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

Greece, 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. It is aiming to slash the deficit to under 3 percent of GDP by 2012.

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

The United States and other big economies are also saddled with debts, having spent heavily to stave off a depression in the wake of the 2008 credit crisis.

Ratings agency Moody's Investors Service this week said the United States must do more to keep its AAA rating after the Obama administration said it expected a deficit equivalent to 10.6 percent of gross domestic product in 2010, more than three times the level considered sustainable by economists

On bank rules, the G7 on Saturday renewed a call for stronger and internationally agreed capital standards, to provide a cushion for banks against future crises, and an agreement that banks should help pay for rescuing the financial system themselves.

The G7 group would consider a British idea of a levy on banks to help pay for the cost of dealing with financial crises, a G7 official said on Saturday, adding countries would seek to avoid any such measures hurting the economic recovery.

The G7 meeting was seen as possibly the last standalone gathering of a group that has dominated international finance for decades.

The rise of China and other emerging market heavyweights has left the G7 less able to manage the global economy and last year world leaders endorsed the wider G20 group as the main forum for discussing the global economy.

Canada said the discussions in the Arctic underscored how the G7 was still important.

Our meeting has reaffirmed the proven role of the G7 as a first responder and as a sounding board for common challenges, Flaherty said. We look forward to our next meeting on the margins of the usual spring meeting of the IMF.

(Additional reporting by members of the Reuters reporting team in Iqaluit, Writing by William Schomberg and Janet Guttsman, Editing by Chizu Nomiyama)