For the Dutch and their legions of orange-clad fans wearing everything from jerseys to jumpsuits to clown gear to pajamas, it was yet another crushing disappointment.

Their first World Cup title tantalizingly within reach, they failed in the final for the third time. This one might have been the most bitter because, unlike in 1974 and 1978, the Netherlands was unbeaten not only in this tournament, but in qualifying for the first World Cup staged in South Africa.

Soccer City was soaked in Oranje, from the seats painted in that hue throughout the stadium to pretty much everyone seated in them. Unlike when they lost to hosts West Germany and Argentina in previous finals, the Dutch were something of a home team this time.

The Spaniards, though, were the winners.

They had pockets of supporters, too, to be sure, dressed in red and scattered around the stadium. They might have been the minority, but when the final whistle blew, they were tooting their vuvuzelas loudest in tribute to their champions.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

JOHANNESBURG (AP) — Andres Iniesta scored late in extra time, lifting Spain to a 1-0 victory over the Netherlands for its first World Cup title.

Iniesta broke free inside the penalty area Sunday, took a pass from Cesc Fabregas and put the ball just past the outstretched arms of goalkeeper Maarten Stekelenburg.

In 2007, the bad debt connected to repackaged subprime mortgages started undermining banks and hedge funds, and by early 2008 confidence in the system was slipping fast.

This time it is the exposure of banks everywhere to sovereign debt — the IOUs of governments — whose value has been falling for months.

The sheer size of the European economy is a factor, said Mauro F. Guillen, director of the Lauder Institute at The Wharton School in Pennsylvania. “If European demand goes down, global growth will slow down,” he said.

“A European economy that lags is not necessarily enough to put the world economy back into recession. But a European economy that cannot stabilize its currency and capital markets certainly will push the global economy back into the red.” Nicholas Colas, ConvergEx Group chief market strategist, told The Associated Press. “A double dip is a possibility.”

It is a daunting prospect, because having already deployed their best countermeasures — stimulus spending and central bank interest rate cuts — governments everywhere may be out of ammunition.

Stephen Lewis, a London-based economist with Monument Securities, spoke for many of the pessimists Friday after a week of market turmoil in Europe when he saw “no guarantee that the upswing in the global economy from 2009′s low point will be sustained.”

At the heart of the crisis are fears that indebted eurozone governments will not be able to pay what they owe. Those fears have sent the prices of government bonds — many of them held by big banks in Germany and France — plummeting. Europe also faces low growth prospects because governments must cut back on spending to pay down heavy debt loads.

If banks in Europe and beyond suffer losses on marked-down government bonds, this would then make them afraid to lend the money that businesses need to operate and expand, choking off growth — a replay, in a sense, of the freezing of credit markets after the Sept. 2008 collapse of the U.S. investment bank Lehman Brothers which led to a worldwide recession. The global economy shrank by 0.6 percent in 2009, its first dip since World War II.

“If sovereign debt concerns are accompanied by worries over bank liquidity any more significant than those currently influencing the credit market, another dip in world economic activity would seem a sure thing,” Lewis said.

As fear spreads, stocks and the price of oil, both signs of expectations for future economic growth, have been drawn into the downdraft. And gold, traditionally a safe haven, has hit ominous all-time highs.

Most of the world’s leading stock markets are below where they started the year as investors revise down their growth expectations for the global economy.

Reflecting the optimism that held sway until recently, the IMF in April slightly raised its 2010 global growth forecast to 4.2 percent, although eurozone growth was forecast at only 1 percent. Now even that looks optimistic.

Daniel Tarullo, a governor with the U.S. Federal reserve, told a Congressional House subcommittee Thursday that Europe’s crisis was a “potentially serious setback.”

Tarullo said that the worst case financial turmoil — possible but still unlikely — “could lead to a replay of the freezing up of financial markets that we witnessed in 2008.”

The latest crisis erupted in October, when the new government in Greece admitted its predecessors had lied about the size of their budget deficit. Instead of a manageable 3.7 percent of gross domestic product, it was a destabilizing 12.7 percent, since revised up to 13.6 percent.

Fears spread for a similar scenario in other countries like Spain and Portugal, and that shattered confidence in the euro, which has in recent months lost some 20 percent of its value.

A bailout seemed necessary — but eurozone leaders struggled to agree, with opposition especially strong in Germany, where the idea of paying for the profligacy of Greeks and other partners is extremely unpopular.

As Europe dithered Greece faced skyrocketing borrowing rates driven by fear of default and ultimately was shut out of bond markets. Eurozone governments — with an assist from the International Monetary Fund — eventually produced a euro110 billion bailout for Greece, followed two weeks ago by a euro750 billion backstop for other shaky governments.

The huge injection was surprising and impressive and seemed to halt the slide, at least temporarily. But while the sum might not be too little, it could still have come too late. Talk that would have been taboo a few years ago, of the eurozone breaking up, is starting to spread.

And even if it is only talk for now, such words can have ripple effects around the world.

World markets have always affected each other, but instant and constant connectivity and real-time trading and instant information have taken things to a new level; bad news in Milan can trigger instant selloffs in Tokyo or Chicago.

In China, the world’s top exporter and the biggest economic engine in Asia, there is renewed fear that a slowing in exports — its lifeblood — could reverberate through the economy, squeezing manufacturers already grappling with rising costs and narrow margins, Commerce Minister Chen Daming warned this week.

A sell-off in the stock market this week signaled, among other things, a belief that the economy is headed for a slowdown later this year, after having expanded by nearly 12 percent in the first quarter from the same quarter the year before.

Guillen noted that as the euro sinks against the dollar, it also falls against Asian currencies linked to the dollar such as China’s yuan, also called the renminbi. That makes it tougher on China’s exporters. And it makes China more reluctant to let its currency rise against the dollar, a longstanding hope of U.S. administrations.

“A weaker euro makes it harder for China to agree to an appreciation of the renminbi relative to the dollar because China’s exports to Europe would be taking a double flow,” Guillen said.

The Fed’s Tarullo said the direct effect on U.S. banks of losses on exposure to overextended governments in Greece, Portugal, Spain, Ireland and Italy “would be small.” But if problems were to spread more broadly through Europe, U.S. banks would face larger losses as the value of traded assets dropped and loan delinquencies mounted.

U.S. money market mutual funds, which are major suppliers of short-term cash to European banks through their holdings of commercial paper, would likely also be affected, Tarullo said.

Neil Mackinnon, global macro strategist at VTB Capital in London, said it would be a mistake to think the problems on Europe’s periphery represented only a local crisis.

“The problems in the eurozone debt markets, which many people thought was a regional problem, has morphed into a major global problem,” Mackinnon said.

Germany’s embattled Chancellor Angela Merkel, whose government is widely blamed for the dithering that so amplified the collapse of confidence, suggested this week that she understood the heavy stakes.

“The euro is in danger,” she told lawmakers, urging them to approve Germany’s portion of the wider bailout plan. “If we do not avert this danger, then the consequences for Europe are incalculable, and then the consequences beyond Europe are incalculable.”

The lawmakers did as she asked.

Aversa reported from Washington and Pylas reported from London. AP Business Writer Elaine Kurtenbach in Shanghai and Associated Press writers Juergen Baetz in Berlin and Tomoko Hosaka in Tokyo contributed to this report.

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Stocks end bumpy week with a pop

LATE-DAY RALLY: The Dow Jones industrial average started the day lower, falling below 10,000 points, but came back late in the day to end with a gain of 125. It gained 117 of those points in the last 30 minutes of trading.

TURBULENT WEEK: The Dow broke a three-day losing streak, but still ended a see-saw week down about 4 percent. It’s about 9 percent below its recent high reached April 26.

CORRECTION MODE: Other major market indicators like the S&P 500 index are still more than 10 percent below their late-April peaks, a decline anaylsts call a “correction.”

Van Rompuy gave no details of new sanctions because officials from the EU’s 27 governments, the European Central Bank and the European Commission are only starting work on changes to widely flouted EU budget rules. EU leaders are due to decide on long-term reforms at an October summit.

Germany, which is providing the largest chunks of bailout funds for Greece and the eurozone, is keen on harsher punishments for countries that break the rules to deter them from seeking financial rescue such as such as stripping EU governments of voting rights or development funds or even ejecting them from the euro currency.

Van Rompuy indicated that he was opposed to the changes Germany has called for. Such changes to EU treaties would require each country to amend its national law — a painful and lengthy process that could be rejected by national parliaments or voters.

“We must work as far as possible within the framework of the current treaties,” he said, because it “allows us to work far more rapidly.”

French Finance Minister Christine Lagarde echoed him, saying “we considered today what is deliverable quickly.”

German Finance Minister Wolfgang Schaeuble said there were no takers for his idea of setting out how a country would go bankrupt, an “orderly default” that could assure investors by spelling out how much they could expect to lose on government bonds.

“Everything is on the agenda,” he told reporters. “We should do what we can do very fast.”

European stock markets partly recovered earlier losses Friday after German lawmakers approved a euro750 billion ($937 billion) package of cash and state loan guarantees to protect eurozone countries with troubled finances from bankruptcy.

The FTSE 100 index of leading British shares closing down 10.20 points, or 0.2 percent, at 5,062.93 while Germany’s DAX fell 41.82 points, or 0.7 percent, to 5,826.06. The CAC-40 in France ended 1.78 point, or 0.1 percent, lower at 3,430.74.

Earlier, Europe’s main three indexes were nursing hefty losses once again but a better than expected performance on Wall Street helped ease the selling pressure — the Dow Jones industrial average was up 75.12 points, or 0.8 percent, higher at 10,143.13 while the broader Standard & Poor’s 500 index rose 11.19 points, or 1 percent, to 1,082.78.

Schaeuble told lawmakers in Berlin that the country had to make the rescue package a reality “because markets will only trust when it is actually in effect.”

France is due to vote on the eurozone bailout by May 31 but neither Spain or Italy have set a deadline to authorize it. Along with Germany, these nations will provide the bulk of the package.

Friday’s meeting will be followed by more talks on June 7 in Luxembourg that will draft a range of reforms for EU leaders to choose from in October.

But economists say that convincing action to reduce debt is the next needed step after the bailout loan package, which can only add more debt.

Germany has pushed hard for aid to debt-laden European countries to be coupled with requirements to bring down deficits. Under pressure, Spain and Portugal have promised to move faster to reduce the difference between how much their governments earn and spend.

EU officials have warned that other eurozone countries with large deficits — such as Ireland — may have to do the same.

Outside the eurozone, Britain has also promised to lay out big budget cuts next week. British treasury chief George Osborne said he wanted “to show that we are serious about living within our means.”

“Britain has the largest budget deficit in the EU and I’m very conscious of that and that’s why in Britain we’re going to accelerate the reduction of that deficit,” he said.

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Associated Press writers Robert Wielaard and Raf Casert in Brussels, Geir Moulson in Berlin and Pan Pylas in London contributed to this story.

“The simple misconception is people trying to equate pure economic logic with social political reality,” O’Neill said in an interview from his office in London today. “The Germans and French are passionately committed to it whether the rest of us think it’s crazy or not.”

“It” being European integration, although I suspect that the general public is less excited about making the necessary sacrifices to keep the eurozone going than the elites to whom O’Neill is presumably referring. For example, I continue to find it nearly inconceivable that Spaniards will accept such huge wage cuts willingly. The political pressure to withdraw from the eurozone would seem guaranteed to rise abruptly. But according to the president of the European Central Bank, Jean-Claude Trichet, in a Der Spiegel interview, leaving the “euro area” is simply not an option.

SPIEGEL: Would it not be good if a country such as Greece were able to leave the euro area?

Trichet: No. This is excluded. If a country joins the euro area, it shares a common destiny with the other members. There is a need for a quantum leap in the governance of the euro area. There need to be major improvements to prevent bad behavior, to ensure effective implementation of the recommendations made by “peers” and to ensure real and effective sanctions in case of breaches (of the Stability and Growth Pact).

Barry Eichengreen has a nice summary of the kinds of things Europe needs to do to make the eurozone work. But basically, “a quantum leap in governance” really boils down to the brute reality that members of the eurozone will not be able to conduct fiscal policy as they see fit if their actions transgress against the requirements of the Stability and Growth Pact. Another way to interpret this is to say that countries paying for the current bailout will get to tell the recipients of their largess how to manage their affairs. So Germany, for example, would get effective veto power over Spanish or Greek budget decisions.

Trichet told Der Spiegel that “it is clear that since September 2008 we have been facing the most difficult situation since the Second World War — perhaps even since the First World War.”

And what did those two European catastrophes have in common? Germany attempting to tell the rest of Europe what to do…

The shared currency has now fallen a staggering 12 percent over the past week in spite of the massive euro750 billion ‘shock and awe’ financial rescue package unveiled last weekend from the EU, together with the International Monetary Fund.

The slide comes as Europe’s leaders are saying that the loan backstop isn’t enough and that goverments must take drastic steps to get debt under control — and shore up the fundamental rules that govern their 11-year-old currency.

German Chancellor Angela Merkel conceded over the weekend that package was no more than a band-aid solution to the problems afflicting a number of eurozone countries, from Ireland all the way across to Greece.

The solution, according to Merkel, is greater cooperation in financial and economic policy across Europe to ensure the currency’s long-term stability.

European Central Bank President Jean-Claude Trichet echoed Merkel when he told German newspaper Der Spiegel that the package “bought time, nothing more” and that there is now a need for “a quantum leap in the governance of the euro area.”

The package — on top of an earlier euro110 billion bailout of Greece — appears to have calmed fears of immediate disaster — such as a wave of debt defaults across the 16-country eurozone — but longer term issues remain.

In particular, investors remain highly skeptical about the ability of Europe’s governments, Greece’s in particular, to push through the austerity measures promised in the face of likely political and social unrest. And even if they do, there are fears the cutbacks will kill off growth — and make it even harder to pay government debt.

“This week has started with the news that the German government will press other eurozone countries to follow its example in setting rules for balancing budgets within its regions,” said Jane Foley, research director at Forex.com.

“However, this is unlikely to fundamentally alter sentiment with respect to the euro given broad based skepticism about the ability of Greece to stomach the budget reform already on the table,” said Foley.

This skepticism has been evident across the financial system. While the euro has dropped sharply, interbank lending rates have spiked higher amid concerns that the debt crisis will prove to another headache for the banking sector. Gold is back in demand as investors seek sanctuary in this traditional safe haven asset — on Friday, gold prices struck a new record high of $1,249.40 an ounce.

Despite its decline, the euro still remains above its average of $1.18 since its creation back in 1999 and a number of analysts think that the selling has been overdone. They think the currency may experience a temporary near-term rebound as traders buy euros to settle recent deals.

That respite could be short lived given worries about the economic impact of the budget cuts outlined in Portugal and Spain, as well as Greece.

“The severe nature of the austerity measures being imposed on countries in exchange for bailout cash has caused a crisis of confidence about future growth levels, and could well precipitate the debt defaults it was designed to avoid,” said Michael Hewson, an analyst at CMC Markets.

Alongside these fears, investors remain worried that the European Central Bank’s independence has been tarnished by the news that has agreed to buy government bonds in the secondary markets to maintain liquidity and keep yields low. Just ten days ago at the monthly rate-setting meeting, Trichet had said the issue had not even been discussed.

The bank has been at pains to say the measure will not increase the supply of money in the economy — a potentially inflationary move.

The euro’s slide has been propelled by predictions the bank will wait even longer before raising its key interest rate , now at a record low of 1 percent. Those low rates can weigh on the euro’s exchange rate by reducing return on euro-denominated investments — especially if rates go up first in the United States as its economy recovers. UniCredit economists have moved their forecast for the first ECB rate hike from March 2011 to the fourth quarter of that year.

(This version CORRECTS Corrects typo in headline. Moving on general news and financial services.)