WRAPUP 6-G7 reassures on Greece, talks tough on banks

* Reassurances on Greece fall on skeptical market ears

* G7 points to narrowing of differences on bank reform

* Arctic venue proves popular, complicated

* No change on FX thinking

By Janet Guttsman and Glenn Somerville

IQALUIT, Canada Feb 6 (Reuters) - Reassurances about debt-strapped Greece and agreement that banks should pay for future rescue funds capped an international meeting in Canada's Arctic, as European policymakers sought to convince jittery markets that they have things under control.

Ministers and central bank governors said economies were recovering from recession but stuck to their view that it was too early to withdraw government help.

In a statement issued on Saturday after two days of talks by the Group of Seven rich industrialized countries, European Central Bank President Jean-Claude Trichet said he believed Greece would meet tough new targets to rein in its budget gap.

"We expect and we are confident that the Greek government will take all the decisions that will permit it to reach that goal," Trichet said.

French Finance Minister Christine Lagarde said euro zone countries would make sure the Greek plan was implemented and Jean-Claude Juncker, chairman of the group of euro zone finance ministers, dismissed the idea Greece would need money from the International Monetary Fund.

Not everyone was convinced it would be that easy, however, given that Greece's problems already have driven down debt prices of other high-deficit European countries.

World stock markets slumped to three-month lows on Friday on fear that the crisis would spread and the euro fell to its lowest level against the dollar in 8-1/2 months.

"I don't think Trichet's comments will help ease concerns about the euro zone. There is still no concrete plan on the Greek issue," said Boris Schlossberg, Director of FX Research at GFT in New York.

"The other problem is that the G7 has agreed to put a tax on banks, and any type of taxation on the banking sector is going to be viewed negatively by the market. So the net result of all this is not a boost of confidence in the capital market. We may see a little more turbulence going forward. Overall, the G7 meeting, instead of reassuring the market may have simply created more angst."

MAKING THE BANKS PAY

Greece, which aims to slash its budget deficit of nearly 13 percent of gross domestic product to below 3 percent in 2012, was a late entry to the G7 agenda.

Earlier, ministers had expected talks to focus on efforts to reform a financial sector that is still recovering from the market meltdown caused by the credit crisis.

Officials from the G7, a rich countries' club comprising Britain, Canada, France, Germany, Italy, Japan and the United States, said support was rising for a levy on banks that could pay for global governments' rescue of the financial system.

But such a levy would have to be designed so it did not derail a tentative economic recovery, they said.

U.S. Treasury Secretary Timothy Geithner played down differences between countries on banking reform.

Last month the Obama administration stunned the banking industry with tough reform proposals that took other countries by surprise too,

"We all share a deep commitment to try to move forward and reach agreement on a strong, comprehensive set of financial reforms on the timetable we all committed to last September," Geithner said.

"That means agreement on...a new set of capital requirements for large global institutions by the end of this year."

Iqaluit, the town that hosted the meeting, was the most exotic and inaccessible location for a G7 meeting to date, offering unique extracurricular activities like dog-sledding and food that included Arctic char and muskox minestrone.

A shortage of commercial flights and the distances involved meant most ministers used government jets. Every hotel room was full in Iqaluit, located by the iced-over Frobisher Bay.

Geithner said the G7 underscored its commitment to reinforcing recovery, while Canada's Jim Flaherty said the global economy was improving but still needed government help.

"We do not have a firmly established recovery yet, but there are signs," he said. "We need to continue to deliver the stimulus to which we are committed and begin to look ahead to exit strategies and to move to a more sustainable fiscal track."

DEBTOR PARADISES

The United States and other big economies are also saddled with debts, having spent heavily to stave off a depression.

Ratings agency Moody's Investors Service this week said the United States must do more to keep its AAA rating after the Obama administration said it expected a deficit equivalent to 10.6 percent of gross domestic product in 2010, more than three times the level considered sustainable by economists.

But Japan, which also faces a yawning budget gap, admitted it had got off lightly.

"I explained Japan's fiscal situation to the G7 and frankly expected more discussion about it. But much time was spent exchanging views on Greece," said a clearly relieved Japanese Finance Minister Naoto Kan, speaking to reporters after a dog-sledding adventure which he described as moving.

Ministers said the G7, which issued no formal communique on Saturday, stuck by the statement it made last October on foreign exchange, when it said it was monitoring markets and would cooperate as appropriate.

Lagarde said under the new, more informal format of the G7 meetings, the group had decided to issue separate statements on currencies only when it had something new to say.

But others said discussions of foreign exchange policy need not be limited to the G7. While some European members like France said the G7 was the best forum, Japan's Kan suggested that if discussions were to involve China's yuan, for example, then talks could take place in the wider Group of 20 developed and emerging economies, which includes key players like China.

The Iqaluit meeting could be the last standalone gathering of a group that dominated international finance for decades but became less relevant as emerging markets gained power. (Additional reporting by members of the Reuters reporting team in Iqaluit and Gertrude Chavez-Dreyfuss in New York, Writing by Janet Guttsman and William Schomberg, Editing by Chizu Nomiyama)