Protesters Take to Street in Madrid

MADRID — The pressures facing the government of Prime Minister Mariano Rajoy mounted on several fronts on Tuesday, as thousands of demonstrators besieged Parliament and Spain’s two largest regions took steps that underscored their deepening economic troubles and displeasure with his austerity plans.

Presenting the biggest domestic political challenge, the leader of Catalonia, Spain’s most powerful economic region, called an early election for Nov. 25 that could turn into an unofficial referendum on whether to split from the rest of the country.

Catalonia’s demands for more autonomy have been fueled by its own financial problems, which forced the Catalan government last month to request $6.5 billion from an emergency fund of $23.3 billion set up by Mr. Rajoy’s government to help regions meet their debt financing obligations.

Underlining its deepening financial difficulties, another region, Andalusia, said Tuesday that it was preparing to request $6.3 billion from the fund.

The developments unfolded as police officers and protesters clashed before the Parliament building and as Mr. Rajoy comes under intense pressure from investors and his European counterparts to clean up Spain’s banks and public finances, particularly at the regional level.

The problems in the regions, both political and economic, appear to be intensifying, as Catalonia’s move showed Tuesday, two weeks after a huge pro-independence rally in Barcelona.

“The voice of the street needs to be moved to the ballot boxes,” the president of Catalonia, Artur Mas, told lawmakers at the regional Parliament. “We want to have the same instruments that other nations have in order to develop their own collective identity.”

Following the Sept. 11 rally in Barcelona, Mr. Rajoy called on regions and their politicians to avoid raising tensions and instead to close ranks and help Spain emerge from its economic quagmire. Last week, in an unusual political foray, King Juan Carlos I also published a letter urging national unity.

“Mas has been under intense pressure to calm things down, even from the king, but what we now see is that far from taking any step back, Mas is in fact seeking a fresh mandate from voters to move things forward,” said Josep Ramoneda, a Catalan political commentator and philosopher. The result of the vote, Mr. Ramoneda added, “will determine exactly how far and fast Catalonia moves toward independence.”

Economists warned that the call for a Catalonia election added yet another element of uncertainty for Spain.

“Once comforted in power after elections, the government could then work more constructively towards a redefinition of the relationship between the central government and the regions,” said Gilles Moëc, an economist at Deutsche Bank in London. “Still, in the meantime, political turmoil in Spain’s richest region could generate the kind of market reaction which would precipitate a request for European support by Madrid.”

Mr. Rajoy has been debating whether to tap into a new bond-buying program proposed by the European Central Bank. While such additional help would considerably alleviate Spain’s debt problems, Mr. Rajoy finds himself in an increasingly tight bind between Spanish voters who oppose further cuts and investors and European finance officials demanding reassurance that Spain can meet budget deficit targets.

On Tuesday, Parliament took on the appearance of a fortress as about 1,400 police officers ringed the building to keep back demonstrators. The organizers of the latest protest said in a statement that they had no plans to try to occupy Parliament, but instead wanted to surround the building to show that “democracy has been kidnapped” by inept Spanish politicians.

Using their truncheons, the police scattered protesters in an effort to keep some approaches to the Parliament building open. By the evening, the police said that 10 people had been arrested and six had been injured.

Catalonia is the third region to call an early election, with the Basque region and Mr. Rajoy’s home region of Galicia set to hold separate votes next month.

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After High Note for Euro Plan, Discord Emerges

PARIS — In the long euro crisis, there is almost always a sobering morning-after whenever European leaders appear to have made a major breakthrough. And so it went again on Friday.

Greeted with initial fanfare by investors and economic officials, the unlimited bond-buying plan that the European Central Bank president,Mario Draghi, announced Thursday ran into immediate political problems in the crucial countries of Germany, Spain and Italy.

In Germany, despite Chancellor Angela Merkel’s support for Mr. Draghi and the independence of the Central Bank, political and news media reaction was scathing, with accusations that the bank, in seeking to stabilize the euro currency union, was subverting its mandate to fight inflation and forcing debt upon euro zone members.

“A Black Day for the Euro,” “Over the Red Line” and “Pandora’s Box Opened Forever” were some of the German headlines, with the normally sympathetic Süddeutsche Zeitung headlining an editorial: “The E.C.B. Rewards Mismanagement.” Even the German Bundesbank, officially part of the European Central Bank, put out a statement commenting acidly that the plan was “financing governments by printing bank notes.”

At the same time, the two intended beneficiaries of the Draghi plan — Spain and Italy — expressed reluctance to ask the bank for help, even if both might eventually have little choice but to seek aid. The governments in Madrid and Rome apparently fear the political impact at home of bowing to whatever demands for harsh economic policy changes might come with the aid.

They seem afraid that the medicine might prove worse than the disease, because Mr. Draghi made it clear that there would be no bottomless well of money made available without a program of greater spending discipline.

“Those who did everything to have the E.C.B. help now say they don’t want it,” Ferruccio de Bortoli, editor in chief of the newspaper Corriere della Sera, said in a Twitter message. “Speculation will play on this contradiction.”

The disjunction between how officials seek to placate the lightning-fast markets and the reluctance on the part of the public and politicians to make further sacrifices and move at more than a glacial pace highlight why it has proved so difficult for Europe to overcome the challenges that still threaten to tear apart its 17-nation currency union.

The point of the new bank program is to ease interest rates on the bonds of Spain and Italy, the third- and fourth-largest economies in the euro zone after Germany and France, by reducing investor speculation against the future of the euro itself. High rates threaten to bust their budgets, but also to make it all but impossible to raise money in the financial markets.

If Spain and Italy cannot go to the market to finance their debt, then they could need full bailouts by a European Union whose rescue funds are simply too small. So keeping interest rates down for Spain and Italy is a vital part of any euro rescue plan. It is also necessary to buy time for European politicians to make the difficult political decisions to achieve the fiscal and banking union that is the longer-term answer to the structural problems of a common currency without a common treasury.

So far, investors are continuing to bet on Mr. Draghi. Interest rates on the bonds of Spain and Italy fell significantly on Thursday and Friday, after an upward swing in the value of stocks and the euro on Thursday.

The next test for the euro is on Wednesday, when the German constitutional court is expected to rule on the soundness of the permanent European bailout fund, the European Stability Mechanism, that would finance much of the bond buying under the Draghi plan.

More challenges lie ahead. Despite the reluctance of the Spanish prime minister, Mariano Rajoy, to risk the stigma of seeking help — beyond the money Europe has promised to help prop up Spain’s most troubled banks — he is expected to nonetheless make such a request before the end of October.

Spain must pay back 20 billion euros, about $25.6 billion, in bond redemptions in October. And some analysts suggest that Mr. Rajoy will need to seek help to satisfy half of Spain’s 180 billion euro financing needs (about $230 billion) over the next year. “The Spanish fear is that they become another Greece — that they will have to chop off their right arm for a blood transfusion,” said Mark Cliffe, chief economist at ING Bank in Amsterdam.

But some European officials suggest that Spain has already done a lot to clean up its books — more than Italy has done, certainly — and that any new conditions might not be much more onerous, especially in a period of such deep recession and political backlash against austerity. Mr. Rajoy is already losing popularity rapidly, and no one wants further political instability in Spain to add to continuing anxieties over Greece.

Italy is a less urgent case. Prime Minister Mario Monti, a respected economist, had been pushing for a European Central Bank program as a safety net. But he is loath to accept the terms that might now be required because of their potential to choke off economic growth and because of Italy’s own complicated political scene. The country’s ruling political parties, which support Mr. Monti for now, are rapidly losing popularity to anti-euro populist forces as national elections approach next spring.

At the same time, some Italians would welcome the idea of the Central Bank’s conditions as a way of forcing change through the sclerotic Italian political system. But there is considerable uncertainty about what kinds of conditions would be required in return for the new program, and Mr. Draghi made it clear that there would be different conditions for different countries.

In part to reassure the Germans, Mr. Draghi said that the bank’s new willingness to buy bonds of countries facing market speculation would be dependent on “conditionality” — working out a program of structural and economic change with experts from the European Central Bank, the European Union and the International Monetary Fund, the so-called troika that has arranged full bailout programs for Greece, Ireland and Portugal.

But when asked how conditionality would be defined, Mr. Draghi was deliberately vague.

There is a further uncertainty about the survival of the euro zone, which the Central Bank is mandated to defend. Once the Central Bank loads up further on Spanish and Italian bonds — it has already bought more than 200 billion euros ($256 billion) of European bonds, including 50 billion euros ($64 billion) from Greece — it will find it very difficult to stop its bond buying even if countries do not keep to their promises of reform. To do so would be a form of suicide, because it could set off market panic and force countries to exit the euro, beginning a process with no clear end.

But to numerous Europeans in countries with economic problems, from Greece and Italy to Portugal and Spain, there also seems to be no end to hard times.

“I’m pretty convinced that Italy will apply for aid from the E.C.B sooner or later, and we’ll work just to repay the money that the Germans lent us,” said Gianluca Braia, 40, a Roman who lost his job at a food company that outsourced his work. “I’m happy that Monti is prime minister,” he added, “but the music changes little for us citizens.”

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Euro Zone Shrinking Again

The euro zone's two largest economies avoided shrinking between April and June, but the resilience of Germany and France wasn't enough to prevent the currency bloc's economy as a whole from falling back into contraction.

Euro-zone economic output fell 0.2% in the second quarter from the first, the European Union's statistics agency Eurostat said Tuesday. That is in line with economists' forecasts in a Dow Jones Newswires poll. Output fell 0.4% year-to-year, again matching expectations.

The decline, which follows zero growth in the first three months of the year, is likely to make it harder for euro-zone leaders to end the fiscal crisis which has forced several member states to request financial aid and raised questions about the bloc's ability to survive in its current form. Rising unemployment and falling consumer and business confidence could worsen public finances in many countries, pushing back debt-reduction targets and heightening concern among investors.

Growth in Germany and stagnation in France—performances that were both better than economists had expected—prevented a steeper decline in euro-zone output in the period. But with signs growing that these two core economies will struggle during the rest of the year, the prospects for the euro-zone as a whole look set to deteriorate.

Germany's ZEW institute said confidence surrounding the euro zone's largest economy worsened for the fourth consecutive month in August to hit the lowest level this year. The economic expectations index fell to minus 25.5 from minus 19.6 in July, confounding forecasts for a slight improvement in sentiment.

ZEW said that suggests financial-market experts anticipate the German economy will continue to cool over the coming six months. Other forward-looking gauges of the German economy have also worsened of late, with a survey of purchasing executives in July showing the steepest drop in business activity and new orders in three years.

The poor outlook will put more pressure on the European Central Bank to intervene to support the economy, mainly by trying to start credit flowing again through a paralyzed financial system. ECB President Mario Draghi said last month the bank will do "whatever it takes" to save the euro.

"The contraction in euro-zone GDP…reinforces our belief that the ECB will trim interest rates from 0.75% to 0.5% within the next couple of months," Howard Archer, an economist with IHS Global Insight, wrote in a note to clients. He said a cut was more likely in October, but could come as soon as next month.

Eurostat's data showed five euro-zone nations are in recession, defined by many economists as two straight quarters of declining gross domestic product. They are Greece, Spain, Italy, Cyprus and Portugal. All of them except Italy have requested some form of international financial support. Data on the Netherlands have been increased to show that country isn't in recession, as Eurostat had previously estimated. The euro zone as a whole isn't yet in recession, owing to its zero growth reading in the first quarter.

"The euro zone has been able to avoid a 'technical' recession by the skin of its teeth, thanks to the flat outcome in the first quarter which was a result of the unexpectedly strong data out of Germany," said Ken Wattret, economist at BNP Paribas BNP.FR +0.55% .

"As things stand, however, that looks like being a temporary reprieve," he said. "With numerous forward-looking indicators of economic activity signaling a continued contraction in GDP in the third quarter, it probably won't be long before the recession is made official."

Mr. Wattret said BNP Paribas expects the economy to shrink by 0.4% in 2012 as a whole, before returning to growth next year.

Separate data from Eurostat Tuesday showed industrial production falling further in June. That suggests the economy's momentum as a whole was slowing at the end of the second quarter, making an imminent recovery less likely. Industrial output fell 0.6% in June from May and was 2.1% lower than a year before.

The GDP figures showed Germany grew 0.3% in the second quarter, beating economists' forecasts for a rise of 0.2% but still barely half its first-quarter growth rate of 0.5%. France stagnated for a third straight quarter, defying expectations its economy would shrink by 0.1%.

The steepest falls in economic output were recorded in Portugal, down 1.2%, and Finland, which shrank 1.0%. Italy's economy contracted by 0.7%.

Quarter-to-quarter data for Greece aren't available, although that country did record a year-to-year decline of 6.2%—slightly improved from its 6.5% contraction in the first quarter, but still by far the worst annual performance of the euro-zone countries.

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Spain spooks markets as Valencia requests aid from stricken state

Spanish shares suffered their biggest one-day drop in two years, leading European markets’ plunge downwards, after a major Spanish region said it needed rescuing.

Spanish shares suffered their biggest one-day drop in two years, leading European markets’ plunge downwards, after a major Spanish region said it needed rescuing by its cash-strapped government and the country braced for more recession.

The IBEX share index in Spain fell 5.8pc, while Italy’s own FTSE MIB lost 4.4pc, after Valencia became the first region to seek a bail-out from a new fund setup by the Spanish central government, which is itself under heavy financial strain.

As fears rose, the sell-off was seen across Europe, with Germany’s DAX dropping 1.8pc and the UK’s benchmark FTSE 100 losing 1.1pc to close at 5,655.04.

“Like other regions, Valencia is suffering the consequences of liquidity restrictions in markets as a result of the economic crisis,” the regional administration said, as it announced it was preparing to tap the Spain’s new €18bn (£14bn) emergency-loan fund for its regions for an undisclosed amount.

The news spooked investors, who worry that demands from Spain’s regions will put the central government under yet more financial pressure, making a full-blown rescue for the state unavoidable.

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European Food Safety Authority gives chocolate stamp of approval for improving blood circulation

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Some studies have claimed the numerous health benefits of chocolate. Now, cocoa and chocolate has got the seal of approval from the European Food Safety Authority (EFSA), the European regulatory agency that's similar to the Food and Drug Administration (FDA).

The EFSA issued a positive opinion in response to an application from Barry Callebaut, one of the world's largest makers of chocolate products, that cocoa powder or dark chocolate can help a person's blood flow. Barry Callebaut also supplies Kraft and Hersey's with cocoa and chocolate products.

Daily dark chocolate good for the heart, study finds
Dark chocolate outperforms white chocolate in heart benefits study

Specifically, the cocoa's flavonols - or antioxidants -- may boost blood flow. Several previous studies have reported positive health effects from flavonols, but they are normally destroyed in the chocolate making process because of their bitter taste. However, Barry Callebaut has found a formula to keep the sweetness and keep up to 80 percent of the flavonols in their products, the Dow Jones Newswires reported.

Barry Callebaut told Dow Jones Newswires that it is the first company in the 27-member block to get an approval from the EFSA. The European Commission still has to approve the ESFA ruling, but if they do, Barry Callebaut would have the right to use the health claims on its products' packaging, Reuters said.

The company sponsored over 20 clinical studies since 2005 to help prove their claims, according to Dow Jones Newswires. In its opinion, the EFSA said the agency especially considered the study that showed that coca flavonols eaten for 12 weeks have been shown to increase flow-mediated dilation - or the phenomenon when bloodflow increases as it goes through a vessel, causing it to dilate - in one test group, as well as other studies showing that blood flow depended on how much flavonols were consumed. Regulators also weighed two out of three studies on people with coronary artery disease that showed increased flow-mediated dilation with flavonol consumption, but acknowledged long-term effects were not reported.

The EFSA added that in order for flavonols to be effective, one must consume 200 mg of cocoa flavonols through either 2.5 grams of high-flavonol cocoa powder or 10 grams of high-flavonol dark chocolate daily, adding that these chocolates can be eaten as part of a "balanced diet."

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Tighter Control for Euro Banks

BRUSSELS—Senior euro-zone finance officials, moving ahead on a plan to create a single overarching bank supervisor for all the countries in the 17-nation currency bloc, are settling on a framework that would create a new agency reporting to the European Central Bank to police the largest banks in the currency union, people involved in the discussions said.

Euro-zone leaders mandated the regional supervisor's creation at a summit here in June, a significant step toward creating a future banking union among the countries that use the currency.

The establishment of a single authority, with a single set of rules for the region's banks, is seen by Germany and other strong economies as an essential condition before they will consider sharing resources with other euro-zone countries.

Disclosing the first details of how the discussions on setting up the entity were progressing, officials involved said the talks were coalescing around the idea of creating an agency under the ECB that would be charged with sole supervision of the top 25 or so largest banks.

They said smaller euro-zone banks would remain under the purview of their national financial-market regulators. But these national regulators would be brought under the control of the euro-zone supervisor, which could be based in Brussels rather than Frankfurt, the ECB's home.

Although the summit statement said euro-zone finance ministers would flesh out their decisions at a meeting in Brussels Monday, officials from some of the 17 governments said they don't expect ministers to advance the proposals much there.

One of the few areas where they are expected to make significant progress is the details of as much as €100 billion ($122.8 billion) of aid Spain has requested to recapitalize its banks.

While the final sign-off is expected later in July, officials have said the list of conditions to be attached to the assistance is likely to be largely decided and a rough figure for the total agreed.

The meeting will also discuss a bailout request by Cyprus as well as Greece's bailout program, but aren't expected to make a decision. Ahead of the meeting, Russia's finance minister said Cyprus had requested a €5 billion rescue loan from Moscow.

Euro-zone leaders promoted the decision to create a new bank authority as a major breakthrough when they announced it on June 29.

At their summit, leaders made the establishment of the supervisor as a precondition for agreeing to allow the bloc's bailout fund to inject capital directly into struggling banks. That latter innovation was designed to help Spain, whose borrowing costs had been rising because of concerns that borrowing from the bailout funds to boost the capital of some struggling banks would further swell its fast-growing government-debt burden.

The new authority is expected to start operations with policing powers to ensure compliance with European banking rules and to ensure banks were carrying adequate capital cushions.

Only later, officials said, might the supervisor take responsibility for so-called bank resolution—decisions about whether banks should be recapitalized or wound up—and for a euro-zone deposit-guarantee fund. Concentrating these latter two powers on a single euro-zone authority is a tougher decision because they would also potentially create further heavy financial responsibilities for the euro-zone bailout funds.

Germany has supported the idea that the supervisor should be a part of the ECB, which it regards as a competent, effective institution. Berlin's support for the institution to be under ECB auspices seems likely to be decisive, despite the likely reservations from national bank authorities and from parts of the existing European Union bureaucracy in Brussels.

ECB officials have signaled they are willing to play a central role in supervising large euro-zone banks. In June, Vice President Vitor Constâncio publicly threw his support behind the proposal, saying the ECB had the expertise and infrastructure to perform the task.

But the idea doesn't have universal support within the ECB. Germany's central bank is worried that taking on banking supervision could come into conflict with the ECB's central task of keeping price increases under control. One fear is the ECB could be tempted to provide funds to save struggling banks, which could ignite inflation.

Last week, ECB President Mario Draghi laid out conditions he insisted were necessary to make the plan work and protect the ECB's "reputation." He said supervision and monetary policy must be "rigorously separated" to prevent "contamination" between the two tasks. He also said national supervisors should play a significant role in any new euro-zone supervision plan.

The idea that a separate agency should be created under ECB auspices, perhaps based in a different city, looks like a response to Mr. Draghi's concerns.

Officials in Berlin have been critical of the London-based European Banking Authority, which has overseen banking regulation in the 27-nation EU since January 2011. EU governments, not wanting to cede too many powers, limited the EBA's authority, leaving it relatively weak.

Its conduct of bank stress tests last year was widely criticized for failing to bolster confidence in the region's banks. In any case, euro-zone governments wouldn't tolerate an agency controlling their banks to be based outside the euro zone in the U.K.

Some European officials said the EBA will likely continue to exist, with the new ECB agency as its most powerful member.

Euro-zone leaders said they wanted agreement on the new supervisor by the end of 2012, but officials say the complexity of the task means it is likely the authority will take longer, perhaps into late 2013, to set it up. The framework now being settled is likely to act as the basis for a more-detailed plan to be worked out by the European Commission, the EU's executive agency, over the summer. One official said an interim supervisory authority could be set up to smooth the transition.

Allowing the fund to directly recapitalize banks was an effort to break the link between feeble banks and debt-burdened governments. But it is now unclear whether the shift would truly break this link.

A senior EU official with direct knowledge of the situation said on Friday that governments would still have to make good any losses the European Stability Mechanism, the bloc's permanent bailout fund to come into operation this year, suffered on capital injections in its banks.

"I need to make clear what the ESM can do: the ESM is able…to take an equity share in a bank. But only against full guarantee by the sovereign concerned," the official said. He added that while the member state's guarantee wouldn't directly show on the government's official debt burden, the investment "remains the risk of the sovereign."

The direct recapitalization was aimed at ending the situation where lending to governments to help their banks simply added to the government's debt load, pushing borrowing costs higher and further hurting the banks who often hold large amounts of their own government's debt.

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Euro Slides Down to Two-Year Low

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NEW YORK—The euro dropped to a two-year low against the dollar after a disappointing U.S. jobs report and doubts about Europe's plan to address its debt crisis drove investors to the greenback.

On Friday, the U.S. nonfarm payrolls report showed 80,000 jobs were added in June, lower than the 100,000 average forecast by economists polled by Dow Jones. The unemployment rate was unchanged at 8.2%.

Negative reports from Europe further undermined optimism from last week's euro summit. A central euro-area bank supervisor, the centerpiece of the agreement, won't be in place until the second half of 2013, a senior European Union official said.

"The sentiment has worn off from the euro-zone summit, and I think we're kind of left with piecemeal solutions that don't solve the crisis," said Mark McCormick, a currency strategist at Brown Brothers Harriman in New York.

In late-afternoon trading, the euro sank to $1.2267, its lowest level since July 2010. The euro was down 1% from $1.2392 late Thursday.

The euro has given up all of its post-summit gains in the past three days, dropping nearly 3%. A week ago, the common currency had neared $1.27.

The common currency also plummeted to a four-year low against the U.K. pound. The euro traded at 0.7929 pounds, compared with 0.7981 pounds late Thursday.

The euro was already under pressure after the European Central Bank slashed interest rates on Thursday, along with central bank actions from China, England, Denmark and Kenya. The moves signaled central bank concern about the state of the global economy.

Across the board, investors sold riskier currencies, including the Australian and New Zealand dollar, and bought currencies perceived as safer, such as the U.S. dollar and the yen. The Australian dollar fell to $1.0188 from $1.0287 late Thursday, while the pound dipped to $1.5471 from $1.5525.

The dollar gathered strength as investors doubted that the U.S. payroll number, while below expectations, was weak enough to spark another round of bond buying from the Federal Reserve.

"I don't think the Fed's in a hurry to start another round of quantitative easing, given it just started 'Operation Twist,'" said Richard Franulovich, senior currency strategist at Westpac Banking Corp. in New York, referring to the Fed's effort in June to bring down long-term interest rates by buying longer-maturity bonds.

The yen rose against the dollar and the euro, buoyed by its safe-harbor appeal. The dollar recently traded at ¥79.63 versus ¥79.92 late Thursday, while the euro changed hands at ¥97.782 from ¥99.04.

The ICE Dollar Index, which tracks the greenback against a basket of currencies, recently was at 83.35, up 0.6%.

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Russia opposes introduction of no-fly zone in Syria

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MOSCOW: Russia has termed the introduction of no-fly zone in Syria as "counter-productive" and "unilateral" step.  
On Friday, the West-led Friends of Syria group called in Paris the introduction of a no-fly zone in Syria, the crisis-torn country.

"We repeatedly pointed out at the counter-productiveness of various unilateral steps, such like proposals about the creation of the humanitarian corridors and safety zones," Xinhua reported Deputy Foreign Minister Gennady Gatilov as saying here Friday.

"These ideas have not been supported by the international humanitarian organisations working in Syria. These dubious ideas are not needed," he said.

The diplomat stressed that the UN Security Council did not make the decision on imposing of a no-fly zone over Syria and was unlikely to agree with the idea, "especially after what had happened in Libya".

The no-fly zone in Libya "had been introduced in contradiction to the UN resolutions and it was actively used by the NATO countries and some of their allies to support one of the sides in the conflict," Gatilov said.

The no-fly zone in Libya resulted in heavy damage to the country's infrastructure and civilian casualties, he told reporters.

"It is the time not for urging the introduction of the no-fly zone, but for actively implementing the declaration adopted at the Geneva meeting on June 30, which envisages the immediate stop of violence by all parties and the launch of a comprehensive political process," he said.

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France says Geneva Syria plans implies Assad must go

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(Reuters) - French Foreign Minister Laurent Fabius said on Sunday that a text agreed by members of the U.N. Security Council in Geneva on a political transition for Syria implied that President Bashar al-Assad would have to step down.

World powers agreed in Geneva on Saturday that a transitional government should be set up in Syria to end the conflict there, but they appeared at odds over what part Assad might play in the process.

When asked why it appeared Russia and China had a different perspective on the future of Assad, Fabius said:

"Even if they say the opposite, the fact that the text says specifically that there will be a transitional government with all powers means it won't be Bashar al-Assad ... because it will be people that are agreed to by mutual consent.

"The opposition will never agree to him, so it signals implicitly that Assad must go and that he is finished," Fabius told television station TF1.

Russian Foreign Minister Sergei Lavrov said on Saturday the plan did not imply at all that Assad should step down as there were no preconditions excluding any group from the proposed national unity government.

Peace envoy Kofi Annan said after the talks the government should include members of Assad's administration and the Syrian opposition and that it should arrange free elections.

Fabius said a meeting on July 6 in Paris with more than 100 participants would aim to create a "united front" among all strands of the opposition to help put in place the Annan proposal. Neither China nor Russia have agreed to attend the "Friends of Syria" conference.

France, along with Western and some Arab states, has been trying for months to increase the pressure on Damascus. It has been seeking to reach a compromise with Russia, a supporter of Assad, to allow tougher action by the Security Council and move towards a political transition.

In June, Paris proposed making Annan's existing peace plan for Syria obligatory by invoking the U.N.'s "Chapter 7" provision, which allows the Security Council to authorize actions ranging from sanctions to military intervention.

"If the decisions made yesterday are not enough, we will return to the U.N. Security Council and ask for a Chapter 7, meaning the obligation to apply this decision," he said.

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Spain, Italy Rematch in Historic Euro 2012 Final

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And so they meet again at Euro 2012.
This time, however, Spain and Italy are playing for the European Championship and a place in the history books.
The Mediterranean rivals meet Sunday in Kiev's Olympic Stadium, three weeks after they drew 1-1 in their opening match of the tournament's group stage.
As the defending champion and World Cup holder, Spain is bidding to win a third straight major title, cementing its place as one of the greatest national teams. It would also match Germany's record of three European Championship titles.
Only the unpredictable Mario Balotelli and a surprising Italy team — orchestrated by Andrea Pirlo — stand between Spain and what many see as its destiny.
Even Italy coach Cesare Prandelli reckons that Spain is the best bet to lift the trophy.
"At the moment, even if I open my eyes, I am still dreaming," Prandelli said after his side's 2-1 victory over Germany in the semifinals, when Balotelli scored both goals.
"Spain remain favorites because of the years of hard work that they have put in. They have been dominant in every game they've played so far."
Spain hasn't lost in a European Championship since 2004 and has already matched West Germany as the only defending champion to return to the final after winning the World Cup. The West Germans managed it in 1976, but subsequently lost to Czechoslovakia following Antonin Panenka's famous chip shot in a penalty shootout.
This final brings together teams with players brazen enough to have successfully copied Panenka's audacious spot kick during their penalty shootouts in the knockout rounds. Spain defender Sergio Ramos used it in the semifinal win over Portugal, after Pirlo employed it against England in the quarterfinals.
It also features the tournament's best defensive team against one of its most exciting attacking squads.
Spain has not conceded a goal since that opening draw with Italy and hasn't been scored upon in nine elimination games at major tournaments. Balotelli, Antonio Cassano and Pirlo are leading one of Italy's top attacking teams in recent history.
"We always just tried to play, I think that is our strength," said Prandelli, whose team is bidding to give Italy its second European title, the same number as Spain and France.
"When we started off at this tournament, we were convinced that by working in a certain way we could become a proper team — not just a quality team, but also a team with the right spirit."
Though Balotelli's selection had been in doubt due to troubles both on and off the pitch at Manchester City, the 21-year-old Italian of Ghanaian descent has scored three times at Euro 2012.
"I waited a long time for this moment, especially because my mother came all the way here and I wanted to make her happy," he said after the victory over Germany.
"This is the greatest evening of my life, but I hope Sunday will be even better," added the striker, who has a chance to finish as the tournament's top scorer with one more goal.
"For the final my father is coming, too," he added. "So I hope to score . . ."
Along with their players, the Azzurri also have an encouraging statistic on their side: Spain hasn't beaten Italy in a competitive match that didn't end in penalties since 1920.

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Euro 2012: Italy victorious over Germany, now faces Spain in final

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Euro 2012: Italy beat Germany, 2-1, in the semifinals of the Euro 2012 soccer tournament. Mario Balotelli scored twice. Italy will face Spain on Sunday the European Championship finals.

Mario Balotelli finally showed some quality finishing, scoring twice Thursday to give Italy a 2-1 win over Germany and an unexpected spot in the European Championship final.

Extending its winless streak against Italy in major tournaments to eight matches, Germany had no answer for Balotelli nor Antonio Cassano's creativity.

In the 20th minute, Balotelli had no trouble getting past Holger Badstuber to head in a pinpoint cross from Cassano. Then in the 36th, the 21-year-old striker received the ball behind the defense and blasted a long shot into the top right corner.

While he did score against Ireland, Balotelli was criticized for wasting numerous chances against Spain,Croatia and England.

Germany failed to trouble Italy for much of the match, but Mesut Oezil scored on a penalty kick in injury time after Federico Balzaretti was whistled for a handball.

Italy will face defending champion Spain in Sunday's final in Kiev, Ukraine — a rematch of their 1-1 draw that opened Group C.

While Italy has won four World Cups, it's only European Championship came in 1968. Like when they won the 1982 and 2006 World Cups, the Azzurri have managed to maintain their focus despite a match-fixing and betting scandal at home.

On a pleasant evening at the National Stadium Warsaw, Cassano set up the opening goal by befuddling Germany defenders Mats Hummels and Jerome Boateng to lift the ball in Balotelli's direction.

The second goal began with a long vertical pass from Riccardo Montolivo, whose mother is German. Balotelli collected the pass with his back to the goal, controlled the ball with his chest and then sprinted forward and unleashed a blazing shot from the edge of the area as Germany goalkeeper Manuel Neuer again stood immobile.

Balotelli took off his jersey after his second goal, which drew an automatic yellow card, although he will not miss the final.

Even before scoring, Italy controlled the pace of the match, although Germany did have several chances from Hummels, Toni Kroos and Oezil.

In the 35th, Italy goalkeeper Gianluigi Buffon preserved the Azzurri lead by swatting away a long shot from Sami Khedira — and Balotelli doubled the lead a minute later.

To start the second half, Germany coach Joachim Loew brought on Miroslav Klose for Mario Gomez at center forward and replaced Lukas Podolski with Marco Reus on the wing.

With Germany appearing slightly more organized, captain Philipp Lahm had a great look at the goal in the 49th but shot way over the bar.

Buffon made another impressive save in the 62nd, leaping to push a free kick from Reus off the bar.

While Italy largely sat back and protected its lead in the second half, the Azzurri did produce some dangerous counterattacks. Claudio Marchisio shot just wide in the 67th and 75th and substitute Antonio Di Natale missed another chance in the 82nd.

Di Natale came on in the 70th after Balotelli went down with a cramp to his left leg.

White-clad German fans greatly outnumbered Italian supporters, unveiling a huge banner before kickoff that featured a giant "G'' for Germany. However, most of the stadium was filled with Polish fans who supported Italy.

They had plenty to cheer about.

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G20 backs Europe's overhaul to fight crisis

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Europe won support from world leaders on Tuesday for an ambitious but slow-moving overhaul of the euro zone, even as pressure built in financial markets for quicker solutions to its debt crisis that threatens the world economy.

Europe told a Group of 20 summit it intends to work on concrete steps to integrate its banking sectors, a major step long pressed by the United States and other nations to break the cycle of debt-laden countries bailing out their troubled banks which only pushes governments ever deeper into debt.

U.S. President Barack Obama said the sense of urgency amongst European leaders was clear and they knew what steps were needed to "break the fever" of an escalating debt crisis.

"None of them are going to be a silver bullet that solves this thing entirely ... in the next week or two weeks or two months, but each step points to the fact that Europe is moving towards further integration rather than break-up," Obama told reporters at the end of the two-day summit in a Pacific resort.

U.S. Treasury Secretary Timothy Geithner said a strengthened framework for a euro-wide fiscal and banking union to underpin the common currency would help restore Europe's economic growth and lower painfully high borrowing costs for indebted countries.

International Monetary Fund chief Christine Lagarde hailed the progress saying "the seeds of a pan-European recovery plan were planted."

"It doesn't matter if it takes a long time, it has got to be done well," she said, adding that immediate measures and longer-term ones must be pursued in parallel.

G20 leaders now await a European Union summit next week where European officials say they will launch the long process of deeper integration, starting with a push for banking union, with an aim of finalizing a broad plan by December.

Canadian Prime Minister Stephen Harper, a critic of Europe's progress to date, said it was now getting to the root of its debt crisis.

"What will be important, what we'll be watching for next week and going forward will be the concerted, coordinated action that will actually make these things happen," Harper said.

Financial markets have yet to be convinced about the chances of agreement. Germany has resisted taking on euro-wide financial risks if its citizens have to foot too much of the bill, while others, such as France and Italy, want to move more quickly.

Although the danger of Greece crashing out of the euro zone eased after weekend elections, risks are mounting that Spain, the euro zone's fourth-largest economy, will need a full-blown international rescue as its longer-term debt yields hover above 7 percent, a level that has forced other euro countries to seek bailouts.

The tensions over the world economy and the round-the-clock discussions contrasted with the laid-back atmosphere of Los Cabos, a beach resort at the tip of Mexico's Baja California. The summit declaration was drafted at a hotel next to the adults-only, clothes-optional Desire Resort And Spa.

TIMELINE AND PATH AHEAD

G20 leaders found common ground that Europe, the world's richest region, must intensify its immediate efforts to stabilize indebted euro-zone countries while laying out a clear plan for building financial, fiscal and political union as the path to save monetary union.

"The Los Cabos G20 delivered more commitments than expected. The Europeans upped the ante and publicly committed to institutional upgrade for the banking system and fiscal situation of the EU," said Yves Tiberghien, political science professor at the University of British Columbia.

Greece, Ireland and Portugal, overwhelmed by debt, have resorted to international bailouts and the EU last week promised funds for Spain's banking system. But investors see these as stop-gap measures until Europe commits to deep budgetary and political integration, sharing risk at the European level.

This would require euro-zone nations to give up more sovereignty and share economic costs, steps that EU leaders say will take time among the 17 democracies that share the currency, especially for Germany which would foot the largest bill.

ALL NECESSARY STEPS

In the G20 communiqué, euro area countries pledged to "take all necessary policy measures" to safeguard monetary union. Europe also intends "to consider concrete steps towards a more integrated financial architecture", including common banking supervision, bank recapitalization, winding down of failed banks and guarantees for bank depositors, it said.

These steps would help break the link between government debt and banking problems. Combined with fiscal discipline and measures to support growth, they represent "important steps toward greater fiscal and economic integration" that lead to lower borrowing costs, the G20 communiqué said.

Other G20 countries also signed up to measures designed to support a global economy that has slowed to about a 2.5 percent pace. Those with budgetary leeway stand ready to coordinate on fiscal stimulus measures, if economic conditions deteriorate significantly. The United States pledged to avoid a potential big shock to its economy in early 2013 when tax cuts are due to expire and spending cuts take effect, the communiqué said.

Europe's success in Los Cabos was to explain to the G20 the political challenge of overhauling its 17-nation monetary union. Other G20 leaders conveyed the urgency of having a clear plan.

One EU official said that the push for banking union can proceed most swiftly while the vision of a European fiscal union will take longer. "It cannot be done from the morning to the night," the official said.

No less challenging was moving around the resort town which was teeming with Mexican military and police. Tight security stalled traffic and meetings were delayed. Russian Finance Minister Anton Siluanov had to make his way on foot after his car in the presidential motorcade was blocked by security.

CONNECTED WORLD

Italy put forward a potentially controversial proposal for the euro zone's rescue funds to start buying debt of stricken euro-zone countries, such as Spain and Italy, to start lowering their financing costs, European officials said.

French President Francois Hollande said the idea was worth exploring. Italian officials have said the plans would be discussed at a meeting of finance ministers this week. But Germany said no specific initiative was discussed in Los Cabos.

G20 leaders left little doubt that Europe is critical to stabilizing the global recovery.

Obama carefully spelled out to fellow G20 leaders the risks to growth in an interlinked globe, diplomats said. He showed how each region is heavily dependent on demand from the EU, the world's largest economic bloc, for their exports and investment.

"He read out the figures, how much India, China, Korea, etc, how much they each depend on Europe and the European Union in an integrated global economy," a G20 official said.

Development groups complained that Europe's troubles have hijacked the G20 agenda and pushed into the background its work on addressing poverty and food shortages.

"Political courage seems to be in short supply in Los Cabos," said ONE, a global anti-poverty group founded by rock star Bono.

(Additional reporting by the Reuters G20 team; Writing by Stella Dawson; Editing by William Schomberg and Noah Barkin)

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Euro: England tops Ukraine 1-0 to advance amidst controversy

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The England striker returned from a two-match suspension to head in the lone goal Tuesday and give his team a 1-0 win against Ukraine and a spot in the European Championship quarterfinals. The co-host Ukrainians, however, will leave the tournament knowing that things could have been different.

Needing a win to advance, the Ukrainians thought they had equalized in the 62nd minute when Marko Devic's looping shot appeared to cross the line before it was hooked clear by England defender John Terry. But the goal was not awarded by the referee or his extra assistant, who was half-standing on the field only a few meters from the post.

• BLOG: Ukraine gets robbed on unawarded goal

"The goal that wasn't given really changed our plan because if it was given, I think the whole game could have looked another way," Ukraine captain Andriy Shevchenko said through an interpreter. "We tried to give Ukraine a gift but we weren't able to do it."

Although a draw still would have eliminated them, the equalizer would have given the team hope knowing that another goal would put Ukraine through to the quarterfinals.

"I was sad because the ball was in the goal by 1 meter," Ukraine coach Oleg Blokhin said.

The controversy likely will add to the pressure on UEFA President Michel Platini to reverse his opposition to goal-line technology.

It was Rooney, however, who did manage to put his team on the scoreboard.

England captain Steven Gerrard whipped a cross into the penalty area that glanced off two defenders before Ukraine goalkeeper Andriy Pyatov let it slip through his hands as he crouched to collect the ball. Rooney was primed at the far post and made it count.

"I was always putting myself in goalscoring opportunities," Rooney said. "I could've done better with a couple more but I got the goal and it's three points."

Ronney missed the first two Euro 2012 matches through suspension. He was sent off in the team's last qualifier in October and received a three-match suspension that was eventually reduced to two.

The goal was Rooney's first at a major tournament since scoring four at Euro 2004 as an 18-year-old rising star. He failed to find the net at the 2006 and 2010 World Cups, while England failed to even qualify for Euro 2008.

"There was a lot of pressure on Wayne," Gerrard said. "But he stood up and when we needed him he was there."

With the victory, England won Group D and will next face Italy in Kiev on Sunday. France also advanced, despite losing to Sweden 2-0 in the other group match. Ukraine, however, will have to watch the rest of the tournament as spectators, just like co-host Poland.

At the 2010 World Cup, England midfielder Frank Lampard was denied a goal that would have leveled the match against Germany at 2-2. England ended up losing 4-1.

"To be successful you need a bit of luck," Gerrard said. "Two years ago we were unlucky with Frank Lampard and we had to pack our bags."

England is now unbeaten in five matches under Roy Hodgson, who took over the team last month following Fabio Capello's resignation in February.

"Most people didn't think we'd get out of the group," Hodgson said. "We've won it on points instead of goal difference as well. This was an away game with a capital 'A.'

"There were (50,000) people in and only 4,000 brave England fans. When we needed a bit of luck, when the ball may have crossed the line, we got a bit of luck and went on to win the match."

Ukraine had never won at the Donbass Arena on four previous occasions and failed to seize on its dominance when it mattered most.

With their fans dominating the crowd and on the bench at the start due to a left knee injury, the Ukrainians were in control from the outset, far more confident on the ball and containing England inside its own half.

But early efforts were from distance, with Denys Garmash and Yaroslav Rakitskiy striking over, while England midfielder Scott Parker had to throw his body into the path of Devic's low shot.

They were getting closer, though, and looking more even menacing going forward with Oleh Gusev getting into the penalty area and sending in a shot that just crept over Joe Hart's goal.

Before Rooney scored, England came close to testing Pyatov when Ashley Young sent in a low cross that was easily dealt with in the 11th minute.

As Ukraine attacked the England goal, Rooney was quiet in the first half of his first competitive match in more than a month until he sent a free header wide in the 28th from Young's cross.

"It was a while since he played a competitive match," Hodgson said of Rooney. "Every day helps him and helps us. The fact that he had 80 minutes today will give him confidence for the Italy game."

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