OTTAWA — Finance Minister Jim Flaherty says the US has replaced Europe as the biggest threat to the domestic economy.

The minister made the comment after wrapping up two days of meetings with his G20 counterparts in Mexico City, which had a mood he described as serious but not doom and gloom.

Europes troubled finances and the US fiscal cliff have both been hanging over the global economy for months, but Flaherty said the US situation now potentially packs the bigger potential wallop.

I think the difference we have now is that the European leadership is starting to take some concrete actions with deadlines, and thats quite encouraging, he explained.

And more importantly, weve got less than 60 days for this fiscal cliff to be resolved in a very difficult political climate in the United States. Now its going to require breaking through that political gridlock otherwise the consequences are dire.

Flaherty said failure to avoid the so-called cliff – the automatic lapse of about $600 billion in government spending and tax cuts that represents about four percentage points of US economic growth – would push America into recession, with Canada likely to follow.

He said the US Congress must reach a compromise regardless of who – President Barack Obama or challenger Mitt Romney – is elected.

Earlier, the G20 ministers and central bankers issued a communique calling on the worlds largest economies to reject protectionism and currency manipulation, and called on the US to carefully calibrate the pace of fiscal tightening to ensure that public finances are placed on a sustainable long-run path, while avoiding a sharp fiscal contraction in 2013.

The communique made clear the world remains hobbled by moderate growth expectations and a mountain of risks, including weaker growth in some emerging economies and additional supply concerns in some commodity markets.

That sober finding still left space for some optimism, Flaherty said.

Its looking a little bit better in Europe, its looking a little bit better in the United States, the emerging economies still have significant growth, he said.

So it wasnt doom and gloom, it was cautious though.

One of the bright spots, he said, is the recovery in the US housing market, which is already stimulating the lumber industry in BC.

Flaherty said he achieved one of his goals prior to the meeting: securing an agreement to establish a regime wherby G20 nations will publish their records on meeting commitments they have reached.

One of those commitments was the target made in 2010 to halve national deficits by 2013. Many countries, including the US, will miss that goal. The G20 officials decided it was appropriate to loosen the hard target on some countries to support growth.

Flaherty also said he discussed the challenge Canada faces in coping with foreign investments in the resource sector, particularly from state-owned enterprises.

Ottawa has extended for the second time its review of Chinese-owned CNOOCs $15.1 billion takeover of Calgary oil producer Nexen Inc.

Some countries have struggled with it and I had actually some very good discussions with them about how they approached the issue, how they managed it, he said.

He added that there was no suggestions from his colleagues to questions of whether Canada remains open for business.

In other declarations, G20 officials moved to head off concerns that China or some other countries may resort to manipulating their currencies in order to support exports.

We reiterate our commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, avoid persistent exchange rate misalignments and refrain from competitive devaluation of currencies, the officials said.

The G20 represents most of the worlds biggest economies, including some with fixed currencies like China.

© 2012 The Canadian Press