U.S. Treasury Secretary Timothy Geithner said on Saturday it was too early to start withdrawing stimulus for the world's top economies, but governments should pledge a return to more sustainable fiscal policies in the future.

Growth should remain the principal focus of policy among the G8 and broader G20 economies, Geithner told a news conference after finance ministers from the Group of Eight economies finished a two-day meeting here.

He said recovery has not yet arrived, and governments need to keep reinforcing recent improvements in global demand.

It is too early to shift toward policy restraint, Geithner said. Economic and financial recovery, however, will be stronger and more sustainable if we make clear today how we get back to fiscal sustainability when the storm has fully passed.

For that reason, he said the United States was committed to bringing down its fiscal deficits quickly to a sustainable level, starting in 2011, and would work to reduce long-term health care costs that are adding to deficits.

Geithner's remarks partly echoed the G8 finance ministers' communique issued after the meeting, which mentioned the need to prepare appropriate exit strategies for efforts to boost growth, and tasked the International Monetary Fund with analysis work to aid the process.

While Geithner said the force of the economic storm is receding he told the BBC in Lecce that he wanted recovery firmly in place before withdrawing stimulus.

We don't have a world economy that's growing anywhere close to potential yet. We want to see recovery firmly established before we start to get on to the next challenge, he said in the interview.


Geithner's comments were his first at the meeting in Lecce, where differences were aired on the timing of stimulus withdrawals and on tests to determine the health of banks. He kept a low profile and played down rifts on these issues, preferring to talk about broad consensus for continued work to boost growth and efforts to coordinate financial regulatory reforms.

The United States has emphasized the success of its publishing of stress tests on its 19 largest banks in May, which helped restore confidence in the sector and helped these institutions to sell about $65 billion in new equity. European countries have not published the results of their bank health checks.

In his news conference, Geithner referred to stress test discussions as part of the usual stock taking on the financial front, but acknowledged differences in the BBC interview.

The Europeans are taking a slightly different approach to their banking system, he said.

What matters of course is what works. And I think our basic approach is to try to make sure we're all committed to keeping at it till we're confident we have a recovery in place and a financial system that is working again.

Although concerns about rising U.S. debt levels have hurt the dollar and pushed up bond yields, Geithner said the G8 ministers had no significant discussions about this issue.

The Obama administration will unveil regulatory reform proposals next Wednesday, and Geithner said it was important for these to be coordinated with similar efforts in other countries to eliminate the potential for regulatory arbitrage -- choosing the country with the weakest oversight. But he said the United States did not plan to make any joint regulatory proposals with other countries

A U.S. Treasury official in Lecce later said that the proposals also would not include any future disposition for Fannie Mae and Freddie Mac , the two mortgage finance companies that the Treasury seized control of last September. The administration is just starting to consider their future as part of a larger review of the government's role in the U.S. housing sector, the official said.

(Reporting by David Lawder; editing by Patrick Graham)