* Volcker says U.S. economy will take years to recover
* Sees risk of instability in euro
* Carney says recovery at risk if G20 fails on promise
* Zhu says China making progress on consumption growth (Adds comments from Zhu on currency)
By Jeffrey Hodgson and Scott Haggett
CALGARY, Alberta, Sept 10 (Reuters) - The world economy faces a long, hard slog toward recovery and could slide into deflation and financial instability if leaders fail to deliver on promises of reform, top policymakers said on Friday.
At a conference in Calgary, White House special adviser Paul Volcker warned it would likely take years for the U.S. economy to fully recover and three to six years to repair the global banking system.
"This isn't what we normally think of as economic recovery," Volcker said.
"We will not reach peak levels of production, past peak levels of production, for several years even on a reasonably optimistic trajectory ... assuming the economy grew by 3 percent a year," he said.
Underscoring the unprecedented challenges that governments and central bankers are grappling with, Volcker said the recovery so far does not fit with any historic pattern after past recessions.
"You think you're going backward instead of forwards. That's the way this economy feels at this point," he said.
Europe's problems put the stability of the euro currency at risk, he said, drawing parallels with the U.S. experience.
"They show some of the same symptoms as we've had in the United States with the risk that it puts the stability of the euro itself in some jeopardy."
WILL G20 SUCCEED WHERE G7 FAILED?
In a collective reality check amid conflicting data regarding the state of the global economy, other policymakers at the annual round-table, which takes place at the Spruce Meadows equestrian facility, were similarly pessimistic.
Bank of Canada Governor Mark Carney blasted policymakers for failing to collectively prevent crises or mop up properly after they occur.
He challenged the G20 group of rich and emerging nations to do better, but said there was little sign of that so far.
The G20, which includes emerging giants China, India and Brazil, has replaced the smaller Group of Seven rich nations as the main forum for global economic policy.
"Time will tell whether G20 nations can better the underwhelming track record of the G7 in coordinating policies," he said. "Without the successful completion of G20 reforms, the current recovery is at risk."
After committing at a Toronto summit in June to a plethora of reforms such as more exchange rate flexibility in China and bringing fiscal deficits under control in Europe and North America, Carney said countries are showing a lack of conviction as they head to a November summit in South Korea.
"The only measures that have actually been implemented have been consistent with the deflation path," he said.
Carney dismissed as an unrealistic "miracle cure" the idea of replacing the U.S. dollar as the global reserve currency, a proposal that both China and France, next year's G20 host, have rallied behind.
CHINA MAKING PROGRESS
He said G20 discussions will inevitably include debate of China's controls on its yuan currency, widely seen as giving Chinese exports an unfair advantage.
China said in June it would let the yuan appreciate gradually against the dollar, a move the G20 applauded. Beijing has let the yuan rise 1 percent since then. Some Western critics don't think that pace is fast enough.
Zhu Min, a special advisor at the International Monetary Fund and former deputy governor of the People's Bank of China, said China is determined to move to a more flexible exchange rate regime but this will not solve all of the global economy's problems.
"The Chinese government is very much determined to move the exchange rates to a more flexible, more market-driven exchange rate regime. And we at the (International Monetary) Fund support the government policy," he told reporters.
"But obviously we understand the China exchange rate change will not have a sort of huge impact on the global imbalance. It will not solve this imbalancing issue."
He also told the audience China was making progress on its pledge to move away from an export-driven economic model.
"At the end of this year, China will end up with 16 percent of consumption growth, which is a very good year for China, because we need to move away from an export-driven to more of a domestic consumption-driven model," Zhu said.
"Obviously it is very difficult ... to maintain a 35 percent export growth rate, particularly in today's very low international economic situation."
Zhu ruled out the possibility of a double dip recession in the global economy. (Additional reporting by Toronto Treasury desk; writing by Louise Egan; editing by Janet Guttsman and Peter Galloway)