* G7 discussed Europe’s progress on closer union-US Treasury
* US, Canada drive home need for big plan, no stop-gap measures
* G20 source: US also seeks immediate steps to shore up Europe’s banks (Recasts; adds background, comments from White House advisers, G20 sources, bylines)
By Stella Dawson and Lesley Wroughton
WASHINGTON, June 5 (Reuters) - The United States piled pressure on European governments on Tuesday to take a bold step toward financial and fiscal union to prevent the euro zone debt crisis from further derailing a stumbling global economic recovery.
Finance ministers from the Group of Seven major industrialized economies reviewed the global economy and financial markets while also discussing policy responses, including “progress towards financial and fiscal union in Europe,” the U.S. Treasury said after hosting an emergency conference call on the crisis.
It was the first official statement from any G7 member country to acknowledge that European Union leaders are actively working on a sweeping plan for deeper political integration, long pressed by the United States and financial markets as a way to underpin the future of the euro currency.
The statement followed comments by German Chancellor Angela Merkel that “the world needs to know how we conceive a political union that will accompany monetary union.”
While the United States is anxious to play the role of trusted adviser and not appear to dictate solutions to Europe, Obama administration officials are working intensely behind the scenes in nudging Europe toward firmer and faster action.
They would like to see the makings of a plan by the time leaders of the Group of 20 largest economies hold a summit in Los Cabos, Mexico, on June 18-19.
The sharp selloff in stock markets on European worries over the past month and a rush into the safety of the U.S. dollar has unnerved world leaders. Growth is slowing in every major economy, and for U.S. President Barack Obama, it could cost him re-election.
Canadian Prime Minister Stephen Harper said the world could not afford to have Europe lurching from crisis to crisis.
“I don’t want to sound too alarmist, but we are kind of running out of runway here. And in terms of structure of the euro zone and in terms of addressing these problems, we do need to see a broader game plan,” he told CBC television on Tuesday.
But a grand political plan, which would take years to implement, is not enough to stabilize the current situation. Spain on Tuesday said it was essentially locked out of financial markets, and its banks need help.
One senior G20 official said that the United States was pressing behind closed doors for two immediate steps - European bank recapitalization and a guarantee system for its bank depositors to prevent bank runs.
Another G20 official said Europe was being pressed to find a backstop both for its banks and for its sovereign governments.
While senior U.S. officials have declined to talk publicly about any specific remedies they are urging, stressing that Europe has the capacity to solve its own problems, on Tuesday they drove home the message that Europe needed to address the shortcomings of monetary union urgently.
U.S. Treasury Undersecretary Lael Brainard, who just returned from a whirlwind five-city tour of Europe to discuss the crisis, said she expected Europe to move “toward greater union on the fiscal front, greater union on financial front.”
“These are critical complements to their monetary union,” she added.
Mark Sobel, a senior deputy assistant secretary at the Treasury, said Europe was moving with a “heightened sense of urgency,” and he expected action within the next few weeks.
“Movement to strengthen the European banking system will be of particular importance,” he noted.
Michael Froman, a senior Obama adviser, also called for a comprehensive European plan that included short-, medium- and long-term measures. Europe’s leaders are “seized with the importance of this and the urgency of these issues,” he said.
International Monetary Fund Managing Director Christine Lagarde added to the chorus for Europe to provide a roadmap on its future political shape, something investors are clamoring for as well.
“The master plan that everybody signs up to will be important because it will set a vision, it will set a collective determination. And that is lacking at the moment,” she said in an interview with Reuters.
On Capitol Hill, concern is mounting after a closely-watched monthly jobs report on Friday showed the U.S. economy added a paltry 69,000 jobs in May with the national unemployment rate rising a notch to 8.2 percent.
New York Federal Reserve Bank President William Dudley and World Bank chief Robert Zoellick were peppered with questions on Europe at a closed-door meeting arranged by senators to discuss the stalemate over the U.S. budget.
Republican Senator Roy Blunt told reporters there was “substantial concern about what is happening in Europe and whether we would be in a position to respond to worldwide economic problems” before U.S. elections in November.
Republican Senator Bob Corker, a senior member of the Banking Committee, planned to discuss the crisis with Fed Chairman Ben Bernanke, who testifies to Congress on Thursday.
“I’ve got a phone call today with the chairman of the Fed. I met with him the week before last. I‘m doing my own briefings. We’re on the phone non-stop,” he said. (Additional reporting by Rachelle Younglai, Jason Lange, Matt Spetalnick and Donna Smith in Washington, and Chrystia Freeland in Riga, Latvia; Editing by Tim Ahmann, Gary Crosse)