Finance chiefs from the world's rich powers opened an icy summit on Friday mulling how to prevent worry about deepening southern European debt from derailing an already fragile global recovery.

Fresh off a run on a dogsled near the remote northern capital of a Canadian territory called Nunavut, host Finance Minister Jim Flaherty acknowledged that even before all Group of Seven finance ministers and central bankers arrived Europe's debt problems were front and center.

We already had preliminary discussions on that subject, a parka-clad Flaherty told reporters even before a formal opening dinner that featured native delicacies like caribou and Arctic char. The European (Central) Bank, of course, is here and there are concerns about Greece.

The G7 includes three key European economies -- Germany, France and Italy -- that made it a natural forum for talks with the United States, Britain, Japan and Canada.

Stock markets tumbled over the past week on fears that a bailout might be needed and the euro currency weakened as concern about fiscal problems in Greece, Spain and Portugal shot higher on investors' shifting list of worries.

Immediately after arriving in Iqaluit, German Finance Minister Wolfgang Schaeuble tried to tamp down speculation the 16-nation euro currency faced serious trouble but made clear the European Union was mindful of risks and determined to deal with them.

The EU has imposed heavy measures on Greece, like an austerity and savings program, and it will watch closely that Greece acts according to that, Schaeuble said.

The attention to European issues came as something of a surprise, given prior indications that financial-sector reform, Asian currency values and the role of the G7 itself might be enough to consider on Friday night and Saturday.

Flaherty said Greece's problems were a reminder of the financial crisis the world is trying to put behind it, much of it blamed on risky behavior and reckless lending by banks that G7 members still cannot agree how to put under firmer control.

I think we have to be very mindful of the potential failure of domestic economies and of the persistence of some toxic assets in some banks, Flaherty told reporters before the meeting got under way.

No communique will be issued at the conclusion of the G7 gathering on Saturday afternoon, though there will be a closing joint news conference and some ministers will hold separate briefings afterward.

Flaherty said he wants the Arctic G7 to return to a fireside chat model as it originally was designed to be in the mid-1970s. In fact, it has been surpassed as the key forum for global policy discussions by the larger G20 that includes China and other key emerging-market countries and this could be the last G7 session outside the ambit of G20 gatherings.

It has its purposes, including giving ministers a chance to meet on the sidelines as U.S. Treasury Secretary Timothy Geithner did on Friday with Japan's Finance Minister Naoto Kan and British Exchequer of the Chancellor Alistair Darling.

Kan, who only took office in January, said the two countries face the same kind of problems and U.S. officials said later they agreed financial-sector reform has to be a priority.

The Obama administration has introduced new elements to that discussion, with president Barack Obama's bid to limit some bank powers and the future size of banks and not all are in agreement on the direction they are headed.

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.

Flaherty diplomatically conceded that the approach from different countries was not entirely consistent, but that was all the more reason for the ministers to get together to talk.

Asian currencies are on the agenda, several ministers said ahead of the meeting, though how meaningful they could be in China's absence was up for debate.

Nonetheless, currency talks can occur in the context of ongoing concern about global imbalances -- the difference between high-consumption economies like the United States that borrow to meet spending needs and ones that save like China and Japan and whom the U.S. needs to buy its debt.

(Additional reporting by members of the Reuters reporting team in Iqaluit)

(Writing by Glenn Somerville, Editing by Chizu Nomiyama)

Germany Japan Canada Portugal