Thousands of protesters have again rallied in Spain, where the government submitted an austerity budget and said the public debt and deficit are set to rise far above earlier forecasts.

Chanting that politicians must resign, the demonstrators surrounded parliament in Madrid on Saturday evening, facing off with riot police and denouncing the conservative government's deep budget cuts.

Rallied by the Indignants protest movement and organised on social media, the protesters held up signs that said simply "No", "Resign" and "Democracy" and shouted toward the legislature: "They do not represent us".

On Tuesday helmeted riot police fired rubber bullets and baton-charged protesters as thousands rallied near parliament in anger at the economic crisis in clashes that left at least 14 people wounded.

The crisis, blamed on the collapse of a speculation-driven real estate boom, has plunged Spain into recession, throwing millions out of work and many families into poverty. Unemployment is close to 25 per cent.

Amid the gloom, the government had more bad news on Saturday, when Budget Minister Cristobal Montoro said debt was now predicted to reach 85.3 per cent of gross domestic product in 2012 and 90.5 per cent in 2013.

The deficit meanwhile was revised to 9.44 per cent of GDP from 8.9 per cent and was predicted to hit 7.4 per cent instead of 6.3 per cent this year.

Turkey's prime minister has said that the era of military coups in his country is over, a week after a court sentenced more than 300 military officers for attempting to overthrow the government.

Recep Tayyip Erdogan trumpeted Turkey's credentials as a rising democratic power on Sunday while addressing a ruling party congress in Ankara.

Erdogan also said that his Islamist-rooted ruling party had become an example to the Muslim world after being in charge for a decade.

Addressing thousands of party members and regional leaders at a congress of his Justice and Development (AK) Party, Erdogan vowed to forge a more diverse constitution and turn a new page in relations with Turkey's 15 million Kurds, in a speech lasting almost two and half hours and meant to chart the AK Party's agenda for the next decade.

Former Chancellor Helmut Kohl, who reunified Germany and pushed the country into the euro, urged Europe to press ahead with closer integration despite a crisis of the single currency, saying the continent must never again descend into conflict.

In a rare public appearance to mark 30 years since he became chancellor, Kohl was celebrated by party allies, an array of former presidents and prime ministers, as well as Angela Merkel, a former protégé with whom he has had a frosty relationship since she turned on him over a decade ago.

Frail since a fall in 2008 put him in the hospital for months, the 82-year old Kohl has remained largely silent through three years of euro turmoil, but on the occasions he has spoken out, he has voiced doubts about Merkel's handling of the crisis.

"Europe can never sink into war again," he told an audience at the German Historical Museum in Berlin. "We need to press ahead with the unification of Europe. Let's make good use of the time we have."

Instead of seeking to position itself to the West or to the East, Ukraine should reform and use its huge natural resources and human potential to become a big international player on its own terms, speakers told a conference held in the European Parliament on Wednesday (26 September).

The conference "EU-Ukraine in 2020, looking beyond the current paradigm", attempted to frame the discussion about Ukraine outside the usual context of the short-term bilateral agenda.

The conference was organised by Fondation EurActiv and the Ukrainian Foundation for Democracy People First, and hosted by Polish MEP Paweł Zalewski (European People's Party).

Most speakers refrained from referring to the imprisonment of former Prime Minister Yulia Tymoshenko, or to the tug of war between Kyiv and Moscow on energy issues.

They did comment at length, however, on the parliamentary elections to be held on 28 October.

France's Left Front Leader Jean-Luc Mélenchon rounded up supporters on Sunday against austerity and the European fiscal treaty. Thousands of people and more than sixty organisations took part in a protest through the streets of Paris.

"Today is the day where the French people begin our movement against a politics based on austerity," Mélenchon said on Sunday.

The protest is a first for the Communist party since the presidential elections, when Mélenchon ran for the top spot. It comes at a time of rising unemployment (pegged at over three million), tax hikes and increasing disapproval of President François Hollande's leadership.

The International Monetary Fund wants to assemble a pool of German pensioners with finance expertise to help Greece establish a functioning financial system, it was reported on Saturday.

The business magazine Wirtschaftswoche reported that IMF Chief Christine Lagarde is hoping to attract retired German financial experts to help out ailing Greece.

She is said to be looking for people with tax experience and also those who held management positions.

Some 170 tax experts from German state and federal finance offices have already offered their services to the Greek tax authorities. But according to State Secretary Hartmut Koschyk only seven of these experts have actually been sent to Athens to help out.

The government is to unveil blueprints for a new generation of shrunken schools and has told builders they will be about 15% smaller than those built during Labour's spending boom.

Corridors, assembly halls, canteens and atriums will be squeezed under the proposals, expected this week, which will set the template for 261 replacement school buildings to be erected over the next five years at a cost of £2.5bn.

The tough space standards will be introduced to help hugely reduce costs in the coalition's delayed programme to replace the country's most run-down primary and secondary schools.

Last week investors - and Spanish journalists - suddenly discovered to their horror that Germany will not after all allow Spain to dump the risk of its banks on to the European Stability Mechanism, the eurozone rescue fund. That seems to contradict the June 29 eurozone leaders' summit statement, which said it was "imperative to break the vicious circle between banks and sovereigns". EU leaders reached this agreement in the early hours of the morning after a diplomatic ambush by the Italian and Spanish prime ministers. Whatever may have been agreed that morning, it was understood differently in Spain than in Germany. The Spanish interpretation had been that the EU would adopt a banking union by the beginning of next year. This would then automatically trigger a shift in the burden of the recapitalisation of the Spanish banking sector from Spain to the ESM.

...

Whether or not you call this a banking union, or a breach of the June 29 agreement, is irrelevant.
The point is that you cannot force through a banking union against the explicit will of the German government, the German parliament, the German public at large and the Bundesbank. I suspect the EU will ultimately agree on a fudge. But it would be irrelevant for the resolution of this crisis.

...

Judging from the political debate, Germany is not ready for a fiscal transfer mechanism of any kind. In particular, Germany is not ready for a banking union. Ms Merkel never made a political case for a banking union in Germany. All she did was play down the implications. I would counsel readers against falling into the trap of thinking that next year's German elections will miraculously clear all the hurdles. All the various probable outcomes favour a continuation of the present policy.

SPD settles on former finance minister as its candidate for the September 2013 federal elections; Steinbrück emerged after Frank-Walter Steinmeier dropped out of the race; Steinbrück has reinvented himself as a pro-European - having been the co-architect of the policy that each country bails out its own banking system; he now comes out in support of a third Greek programme; Kurt Kister says Steinbrück is unlikely to become chancellor as the SPD badly trails the CDU; Kister also dismisses the possibility of an alliance with the Greens and the FDP; Oliver Wyman published its bank recapitalisation estimates for Spain, which came in at exactly the rate forecast by the government and bank executives; critics say that the adverse scenario is still too optimistic because the stress tests only focused on the loan book, while excluding the equity portfolio; one bank does better under the adverse scenario than under the baseline scenario; Spanish government now expects to tap €40bn from the European rescue fund; the political movement of the chairman of Ferrari officially supports Mario Monti as its candidate for prime minister; Eugenio Scalfari also supports a second mandate for Monti, and lists five reforms the goverments needs to undertake to get out of the crisis; Italy's industry minister announces that the crisis is over - thanks to policies already taken by the government; the troika is back in Athens to exert further pressure on the government, with a final agreement now not expected until the end of the week; Dimitris Kontogiannis writes that the cumulative impact of austerity has been 30% of GDP; protests spread to all several south European capitals over the weekend;  Wolfgang Munchau writes that no matter what was agreed at the June 29, there shall be no banking union of any significance, as Germany is not ready; Ruo Chen, Gian-Maria Milesi-Ferretti, and Thierry Tressel, meanwhile, argue that external trade shocks have played a big role in the eurozone's internal imbalances.

Sprem, who suffered from multiple myeloma, died at the MD Anderson Cancer Center in Houston early Sunday morning, Central European Time. He was 56.

France is open to the idea of a new European Union treaty to deepen integration if it is deemed necessary for new "solidarity" mechanisms in the bloc such as debt mutualisation, said French Minister for European Affairs Bernard Cazeneuve.

Cazeneuve was reacting to calls this month by José Manuel Barroso, president of the European Commission, and German Chancellor Angela Merkel for a new treaty to help the bloc overcome a sovereign debt crisis through integration.

"If, for greater solidarity, for more efficiency in the mechanisms of mutualising debt or intervening in the markets, new treaties are necessary, then yes, we'll need new treaties," Cazeneuve told news web site Mediapart during a panel debate on Thursday (27 September).

A new treaty could also help improve economic governance, give citizens a greater voice in European affairs, and better coordinate industrial and clean energy policies, he added.

The Germany weekly Der Spiegel reported last month that Merkel wants an EU 'convention' to draw up a new treaty that would transfer some areas of national sovereignty, notably authority over budgets, to European institutions.

Merkel hopes a summit of EU leaders in December will be able to agree a concrete date for the start of the convention on a new treaty, Der Spiegel reported.

Barroso, in a speech to the European Parliament, called for the bloc to be turned into a 'federation of nation states' in a sweeping call for countries to give up more sovereignty and move toward greater integration.

A more social side to EU integration?

France's position so far has been to achieve as much integration as possible within the confines of the Lisbon Treaty, the bloc's governing agreement, which entered into force in December 2009 after years of wrangling.

But the Socialist-led government now appears ready to discuss further changes to the EU treaty if they imply greater solidarity between member nations, such as debt mutualisation, which President François Hollande has insistently called for.

The promise of further changes to the EU treaty, adding a more social angle to European integration, would help the Socialists ratify the European fiscal discipline pact. The proposal has provoked a backbench rebellion among Hollande's leftist allies in the French Parliament.

It would also help the Socialists calm growing popular discontent about the EU's fiscal discipline treaty, denounced as a Conservative ploy by thousands of protesters who marched in Paris yesterday (30 September).

Angela Merkel has insisted on achieving fiscal and political union in the eurozone as a prerequisite for considering any moves towards greater debt sharing.

Now, the French Socialists seem decided on taking her at her word. "I came to tell you that France is favourable to political union," Cazeneuve told a Brussels conference last week.

From Berlin's perspective, the answer is clear: The German government believes the OMT should only be a last resort; Spain should avoid asking for ECB support unless it becomes absolutely necessary. That's partly because Berlin would have to submit any Spanish request for aid to a potentially troublesome vote of the Bundestag; it is also because any government bond-buying by the ECB will further antagonize the Bundesbank, fanning German opposition to the OMT; and partly because Berlin fears that no sooner does Spain request aid than the market will turn its attention to other countries including Italy, fueling the sense of crisis in the euro zone. If ECB support for Spain does become necessary, strict conditions will be required to ease the domestic political pressure on Berlin.

But viewed through Italian eyes, the situation looks very different.

Rome believes the current wide spread between German and Italian bond yields is a gross distortion of economic reality. The government points out that Italy already runs a healthy primary surplus before interest payments and has taken aggressive fiscal action that should bring the budget back into balance by 2014. At the same time, Italy remains a major manufacturing and exporting economy, producing a trade surplus excluding energy costs last year. Italy never had a debt bubble, it didn't need to bail out its banks and its households possess €9 trillion ($11.57 trillion) of assets, making it one of the world's wealthiest countries. True, government debt which is expected to peak this year at 123% of GDP is high, but Italy has historically sustained high levels of debt with help from a large, loyal investor base.