FIAT DEALERS GARAGES

ECB Executive Board member Joerg Asmussen also told La Stampa daily that Italy had made great progress in terms of improving its public finances, but had now to address the problem posed by its near-zero potential growth.

"There are several practical issues to solve to get to a (unified) European banking supervision," Asmussen was quoted as saying. "I believe that European supervision will be fully operational only during 2013."

EU leaders agreed at the end of June to set up a single banking supervisor in Europe as a pre-condition to letting the euro zone's rescue funds directly inject cash into lenders, without lending to a government first.

Asmussen said Spain, which has requested aid for its troubled banks, would likely experience a temporary increase in its public debt.

"As soon as the new mechanism is in place, the credit would be transferred. The increase in (public) debt would be temporary."

Asmussen said the ECB believed it was important to ensure that its new role as banking supervisor was clearly separated from its monetary policy mandate.

"We must make sure this is guaranteed through distinct decisional and organisational processes," he said.

Asked if Italy could continue to face the euro zone debt crisis without tapping international aid, Asmussen said: "I think Italy can manage by itself if it advances without delays on the reform path and if tackles its growth problem in a serious way."

He said some international institutions have indicated Italy's growth potential is currently close to zero.

"Italy must grow," he said. "Acting solely on the side of public finances is not enough."

Asmussen said he was worried by a growing rift between northern and southern Europe, when asked about German media describing the outcome of the latest EU summit as a defeat for Chancellor Angela Merkel.

"We must ask ourselves only if Europe won. But this way of looking at things is disappearing."

(Reporting by Valentina Za; Editing by David Holmes)

By Tomás Cobos

NAVACERRADA, Spain, July 7 (Reuters) - Spanish Prime Minister Mariano Rajoy said on Saturday his government would take further deficit-cutting measures in coming days and he renewed a call on euro zone leaders to quickly implement a rescue plan for Spain's banks.

Speaking at a conference in a town in the mountains outside of Madrid, Rajoy also said that Spain's 17 autonomous regions must deepen their efforts to cut spending.

The conservative premier is expected to announce on Wednesday in parliament budget measures including a hike in the value-added tax and cuts to benefits for public workers.

Getting Spain's deficit under control, along with the rescue package of up to 100 billion euros for its troubled banks, are key to winning back investor confidence. Borrowing costs have soared, threatening to leave Spain in need of a bailout and escalating the euro zone debt crisis to a dangerous new plateau.

On Friday the yield on Spain's benchmark 10-year bond breached the 7 percent level that is seen as difficult to sustain in the medium term.

"In the coming days we will take decisions to reduce the public deficit. We must take them again," Rajoy said in a speech at the conference held by the FAES think-tank of his People's Party. He forecast "uncomfortable" decisions pleasing to no one.

Spain far overshot its deficit target last year, ending 2011 with a shortfall equivalent to 8.9 percent of GDP. Rajoy's centre-right government, which took office in December, is struggling to slice the deficit to the 5.3 percent level pledged to the European Union earlier this year.

The government has announced savings of more than 40 billion euros this year, both in the central government and regional administrations. But with the economy in recession and tax income flagging, Rajoy has had to come up with more spending cuts and tax hikes.

EU leaders agreed to help Spanish banks with aid and to use European rescue funds - the EFSF and ESM - to buy Italian and Spanish debt and help bring down their borrowing costs.

But the details have yet to be worked out and there is public debate over whether European funds will be injected directly into Spanish banks - so that the aid does not weigh on Spain's public accounts - or whether the government will ultimately liable for the aid.

Rajoy said the measures must be made concrete very soon to restore credibility to the common currency area.

"We've reached important agreement, but what will determine the true success of the summit is that those decisions are turned into concrete, palpable realities, and that it is done in a rapid, agile and effective way ... This is where the credibility of the entire European project is at play." (Writing by Fiona Ortiz; editing by Teresa Larraz and Mark Heinrich)

Police are on high alert ahead of the London Olympics but said the latest arrest and those of a woman and five men in London earlier this week were not linked to the Games.

All seven suspects have been held on "suspicion of the commission, preparation or instigation of acts of terrorism", police said.

Britain has spent millions of pounds beefing up security in preparation for the Olympics.

Security chiefs have said repeatedly that they have no information that the Olympics are being targeted, but Jonathan Evans, head of the domestic intelligence agency MI5, has said the Games present an attractive target.

In a separate operation this week police arrested seven men on suspicion of terrorism after weapons were found in a vehicle stopped on a motorway in Yorkshire, northern England.

A police source said that in that case too, there was nothing to suggest any link with the Olympics, which start on July 27.

In both cases security sources have said the suspects were linked to militant Islamism, but that it remained unclear what was planned. The London suspects were arrested when their plotting was at an early stage, the sources added.

In a sign of heightened vigilance ahead of the Games, armed police closed the M6 motorway near Birmingham, in the Midlands, for four hours on Thursday after a man was reported acting suspiciously on a coach heading to London.

It later emerged the alert was caused by a passenger using an electronic cigarette.

Security authorities have assessed the national threat level at "substantial" - meaning that an attack is a strong possibility - but that is one level lower than it has been for most of the time since the July 7, 2005 suicide bomb attacks in London which killed 52 people.

(Reporting by Tim Castle; Editing by Tim Pearce)