G7 talk on Greece fails to soothe investors, euro dips

TESTING WEEK FOR GREECE

Greece can show investors this week whether it can tighten its belt when the government announces plans to raise taxes and control public wages -- key details of its promised austerity drive.

In a challenge to the Socialist government, the country's civil servants will stage a 24-hour strike Wednesday. The country's finance minister said Athens would stand firm.

Concerns about budget deficits are not limited to the euro zone, with the United States now set to run up a budget deficit of 10.6 percent of gross domestic product this year after spending heavily in an effort to rescue its economy.

Canadian Finance Minister Jim Flaherty, after hosting the G7 meeting, said governments were starting to look at scaling back their support and returning to fiscal health.

But the global economy was not recovering fast enough for governments to withdraw stimulus measures now, he added.

Credit ratings agency Moody's Investors Service last week said the United States must do more to restore its fiscal health to preserve its AAA credit rating, although U.S. Treasury chief Geithner Sunday dismissed concerns the country might eventually lose its top rating.

G7 ministers also said they backed the notion of a global tax on banks to help pay for financial bailouts, an idea first floated last year which seems to be gaining momentum as the Obama administration takes a tougher line on Wall Street.

Boris Schlossberg, director of foreign exchange research at GFT in New York, said the bank tax idea could be another cause for concern for investors on top of the euro zone's problems.

"So the net result of all this is not a boost of confidence in the capital market," he said. "We may see a little more turbulence going forward. Overall, the G7 meeting, instead of reassuring the market may have simply created more angst."