UPDATE 2-U.S. to G7: Recovery building, austerity will come

(Recasts lead, adds Fed’s Warsh, British official, other
details)

By Emily Kaiser

WASHINGTON, Feb 3 (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.

Stock Market Today

(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)

UPDATE 2-U.S. to G7: Recovery building, austerity will come