European crisis renews recovery fears

Iqaluit, Nunavut : A crisis in Europe over unsustainable government debts that sparked renewed global market turmoil leapt to the top of the agenda for global financial leaders meeting half a world away in the Canadian Arctic.

Finance ministers and central bankers from the Group of Seven major industrial countries are also thrashing out differences on banking industry changes amid warnings that unilateral action like US President Barack Obama's plan to break up big banks will further hamper the fledging economic recovery.

Canadian Finance Minister Jim Flaherty, the host of the gathering, is hoping that his choice of the remote town of Iqaluit, population 7,000, where temperatures can hit well below zero in February, would concentrate officials on the task ahead.

The United States was represented by Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke. The G-7 consists of the United States, Japan, Germany, Britain, France, Italy and Canada.

In a break from the usual routine, several of the international visitors ventured out on the ice for a dogsled ride immediately after flying in to the tiny outpost Friday.

Fireside discussions

Flaherty planned to keep the tone of the rest of the gathering equally casual, telling reporters that more chats were planned for the fireside than around a formal table.

However, in a contrast with the casual scene setting here, developments in Europe provided a sobering reminder that G-7 policymakers still face major hurdles repairing a broken global economy.

The Portuguese parliament's defeat of a government austerity plan triggered renewed concerns that it and other countries like Greece and Spain were having trouble tightening budget controls to manage their budget deficits, a development that could threaten the economic recovery in Europe.

Stocks fell in Asia and Europe, while the Dow Jones industrial average clawed back to a small gain after suffering the largest single-day drop in seven months, on worries about the global economy.

"I think we have to be very mindful of the failure or potential failure of domestic economies," Flaherty told reporters before talks formally started with a working dinner on Friday.