UPDATE 1-Europe needs "years and years" to fix economy-Geithner

(Recasts, adds details)

NEW DELHI, Oct 9 (Reuters) - The steps Europe has taken to cure its economic ills will take years to bear fruit and it will be a long time before the continent returns as a major driver of economic growth, U.S. Treasury Secretary Timothy Geithner said on Tuesday.

"Europe has a very hard road ahead of them," Geithner told a meeting with business leaders during a visit to New Delhi.

"And the reforms and the strategies they've put in place will take years and years to bear fruit. Even if one is optimistic about the will and capacity to manage through this, you are still likely to see a very, very challenging growth environment in Europe for a long period of time."

Euro zone finance ministers on Monday unveiled the European Stability Mechanism (ESM), a 500 billion euro rescue mechanism for lending to distressed economies in the 17-country bloc.

Perhaps the biggest contagion risk for the region is Spain. The euro zone has already set aside 100 billion euros for Madrid

to recapitalise its banks but financial markets believe a government bailout will follow in coming weeks or months.

Geithner said Europe's leaders had laid out "a more promising framework", but much would depend on how they acted on a politically difficult strategy.

The International Monetary Fund said this week the euro zone's economic crisis and looming fiscal tightening in the United States were the two biggest risks facing the world economy.

However, Geithner said he was "relatively confident" that Washington could manage the challenges presented by tax rises and mandatory government spending cuts - the so-called "fiscal cliff" - due to hit early next year unless the U.S. Congress agrees to cancel or delay them.

"We have a series of fiscal policy decisions to make at the end of this year that are going to be important to design carefully to avoid adding to the pressures on the U.S. economy. I am relatively confident that we will manage those carefully," he said.

He sounded a cautiously upbeat note on the U.S. economy, saying it was growing at close to potential and was in a stronger position than any other major developed economy.

(Reporting by Manoj Kumar and Rajesh Kumar Singh; Editing by John Chalmers)

((arup.roychoudhury@thomsonreuters.com)(+91 11 4178 1007 Reuters Messaging: arup.roychoudhury.thomsonreuters.com@reuters.net))