U.S. to G7: Recovery building, austerity will come

By Emily Kaiser

WASHINGTON (BestGrowthStock) – The United States will head to Arctic Canada with a message for the G7 from Treasury Secretary Timothy Geithner that the U.S. economy is healing and it is aware of the task ahead to get its bulging debt back into shape.

When finance ministers and central bank governors from the Group of Seven rich nations gather in the Arctic Canadian town of Iqaluit this weekend, regulatory reform and the value of China’s yuan currency will also be up for discussion, a senior U.S. Treasury official said.

The official, who spoke to reporters on condition of anonymity, said Geithner’s message will be that the economic recovery is “gaining breadth” and substantial stimulus remained in the pipeline for 2010.

“The secretary will underscore the U.S. commitment to put government finances on a sustainable trajectory, recognizing that removing stimulus too early could cause a return to slowdown.” the official said.

Geithner will also discuss proposals to assess a fee on large financial firms to recoup bailout costs, and to restrict commercial banks’ ability to engage in proprietary trading. Both ideas have received some resistance in the United States and abroad.

The Treasury official downplayed concerns about inconsistencies in global regulatory reform and said the United States wanted to raise standards and forge some consensus to avoid the risk that companies would seek out the least restrictive regulatory environments for their operations or headquarters.

“We’ve put ideas on the table. Others have put ideas on the table. I think we’re being very cooperative in leading,” the official said, adding, “We’re debating. We’ll continue the debate this weekend.”

ALL TOGETHER NOW

A British official said that although the United States was taking a different approach to regulatory reform, it was not out of sync with what other countries were doing.

“The important thing to emphasize here is that obviously the United States, like us, is thinking very deeply and very hard about these issues and about how to get that right and that’s exactly the same thing as we’re doing,” the British official said.

“We’re both addressing the same risks and similar problems and challenges and … we’re doing that together in a coordinated and cooperative way in the G20 and the G7.”

At the heart of regulatory reform is the question of what to do about firms that are so large that their disorderly collapse could destabilize the global economy, much like the failure of Lehman Brothers did in September 2008.

U.S. Federal Reserve Governor Kevin Warsh, when asked on Wednesday about cross-border cooperation on that issue, said the approach need not be identical in different countries.

“It may be we make some different choices. How the Europeans choose to handle the too big to fail (issue) may be different than how we do. But we shouldn’t surprise each other. We need to be working in coordinated environments,” he said following a speech in New York.

BALANCE AND STABILITY

The G7 club has been marginalized by the rise of the larger Group of 20, which includes rich nations plus some of the large developing countries whose fast-growing economies now account for the bulk of global growth.

The G20 pledged last year to work together to build a more balanced global economy, and that will likely be a topic of discussion at this weekend’s G7 gathering as well.

The primary focus has been on easing huge imbalances between reserve-rich China and the heavily indebted United States. One of the thorniest issues, the value of China’s yuan currency, will be on the agenda, the Treasury official said.

“The Chinese currency issue is on everybody’s mind. It’s an issue for everybody. They will all talk about it,” the official said.

He added that the United States had not altered its position that the yuan needs to appreciate to help put the world economy on a path to more sustained and balanced growth.

“We certainly believe it’s substantially undervalued, and we certainly encourage greater flexibility” of the yuan.

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(Additional reporting by Doug Palmer in Washington, Kristina Cooke in New York and Louise Egan in Ottawa; Editing by Andrea Ricci, Padraic Cassidy, Leslie Adler)

U.S. to G7: Recovery building, austerity will come