20100206

By Leika Kihara and Jan Strupczewski

IQALUIT, Canada (Reuters) - Finance chiefs from the world's rich powers took a close look at European debt problems at an Arctic summit, and a senior official said Europe was determined to solve its problems without the International Monetary Fund.

"We talked about Greece, Portugal and Spain and we told our partners we had to solve the problem ourselves without the help of the IMF," Eurogroup chair Jean-Claude Juncker told Reuters on Saturday, the second day of a summit of finance leaders from the Group of Seven rich industrialized nations.

Euro zone countries like Greece, Spain and Portugal are under increasing pressure to show that they will bring spending under control, and stock markets tumbled to three-month lows on Friday as fears rose about a huge bailout and the possible destabilization of the 16-country Eurozone.

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

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

Warning of tough times ahead for Greece, Schaeuble added: "Greece has to realize that when you break the rules over a long period of time, you have to pay as high price."

The meeting, possibly the last standalone gathering of a group that long dominated the international financial scene, is being held in the legislative building of Canada's Arctic territory of Nunavut, a dark blue, square building where local Inuit residents are building an igloo in the parking lot as a greeting to the visitors.

"I don't have anything against these G7 people or anything. We want to welcome them," said Pitseolak Alainga, working in sub-zero temperatures with friends and family, including an 80-year-old matriarch with her children and grandchildren.

Iqaluit is an unlikely venue for an international meeting of this kind. Located on the edge of an iced-over inlet of the Arctic Ocean, it is home to some 6,000 people. Every hotel room in town is full.

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The discussions are set to focus on problems in the world financial sector, and Canadian Finance Minister Jim Flaherty admitted proposals on this were "not entirely consistent."

The administration of U.S. President Barack Obama has introduced new elements to that discussion with a bid to limit some bank powers and the future size of banks.

Not all are in agreement on the direction they are headed.

Britain's finance minister Alistair 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.

The G7 is also discussing its own future role in a world where the larger Group of 20 is now seen as the primary forum for discussions.

Possibilities include meeting only on the sidelines of larger international gatherings, as well as keeping the group as a separate entity, Japanese Finance Minister Naoto Kan said after Friday's talks.

Kan said France circulated its own proposal on G7 reform but that no conclusion was reached at the working dinner.

China has also been a focus for the talks, although it's an issue that might be better discussed in the broader G20 -- a group that includes China along with other big emerging markets like Russia and Brazil.

"G7 interest on China is potentially strong. But it seemed like everyone was holding back a bit about talking about China with each other," said Kan.

The official line has been that the group will not issue a communique. But one G7 official told Reuters some of the European officials were concerned about not issuing a communique because they feel the market angst in Europe over Greek's debt situation merits one.