By Erik Kirschbaum

BERLIN (Reuters) - Russia President Vladimir Putin said in a German television interview on Sunday that he is convinced it should be possible to find a way to resolve the crisis in Ukraine but added he was concerned about the threat of ethnic cleansing.

In the 30-minute landmark interview broadcast to a prime time audience, Putin defended Russia's annexation of the Crimea but also appealed to the hearts and minds of German viewers by saying relations between the two nations had never been better and saying it would be a shame to throw that away.

"Can one find a way out of this situation? Yes, I'm convinced there is a way," Putin said after criticizing the Ukraine government for using force, rather than dialogue, against its adversaries in the east to trigger the crisis.

"I'll say this bluntly: we're very concerned that the desire could arise to use ethnic cleansing. We're afraid about a drift towards neo-Nazism. There are people with swastikas on their sleeves running around and armed forces with SS symbols on the helmets... That's why we fear there's a drift in that direction. It would be a disaster for the people in Ukraine."

Putin, who was once a KGB spy in Communist East Germany and speaks German fluently, was wearing a checkered dress shirt, dark jacket and grey trousers. German network ARD said the interview was conducted in Vladivostok on Thursday.

Russia isolated over Ukraine at G20Play video

Putin, who spoke almost entirely in Russian and said he had made mistakes, believes Ukraine has a bright future, although it needs a framework so that all its minorities feel at home.

"It's a great nation with great people," he said. "But, you know, there's just one thing missing: an understanding that to be successful, stable and grow, everyone needs to have a feeling that this is their home no matter what language they speak - whether it's Hungarian, Russian, Ukrainian or Polish."

Putin said the annexation of Crimea was legitimate under international law and democratic because both the regional parliament and the people voted for it in a referendum. He said Russian troops were deployed to prevent bloodshed and added he was surprised by the reaction in the West.

"We consider the reaction to be completely inappropriate to what happened," said Putin, who appeared to be perspiring at times - as was the German interviewer - under the glare of the TV lights. "I'm firmly convinced Russia did not violate international law in any way."

Putin, whose position has many supporters in the formerly communist eastern region of Germany, said that he and Chancellor Angela Merkel are both working to calm the situation in Ukraine.

German Economy Minister Rejects Tougher Sanctions …Play video

"It's in our interests ... and we'll look for a common solution and a common political framework," he said. "We're ready for that but it will only work jointly."

He was asked if he had made any mistakes.

"Listen, mistakes are always made - in business and private life," he said. "Everyone makes mistakes. But what's important is to react in a timely way, analyze and understand it was a mistake and then change the behavior - and not get stuck on a dead-end street but work towards finding a solution."

Putin was full of praise for German-Russian relations. Industry leaders in Germany have been the strongest opponents of the European Union's economic sanctions against Russia.

"If you look at the atmosphere between Russia and Germany over the last 10 or 15 years, I don't know if there's ever been such a good period before. I don't think so. I think it's a very good foundation for developing not only bilateral relations but between Russia and the European Union and beyond that for global relationships. It'd be a shame to lose all that."

(Writing by Erik Kirschbaum; Editing by Eric Walsh)

Israeli Prime Minister Benjamin Netanyahu: 'Iran Is Your Enemy'

WASHINGTON -- Less than 48 hours before the start of final talks on Iran’s nuclear program, set to begin Tuesday in Vienna, Israeli Prime Minister Benjamin Netanyahu appeared on American television to warn the Obama administration against agreeing to a deal to dismantle Iran’s nuclear weapons capabilities.

“Iran is not your ally; Iran is not your friend. Iran is your enemy,” Netanyahu said Sunday on CBS "Face the Nation."

Israel is a key U.S. ally in the Middle East. But relations between the two countries have become strained in recent months, as the U.S. participates in multi-party talks aimed at limiting Iran’s nuclear capabilities in exchange for lifting economic and trade sanctions against the country.

According to a 2014 Pew Research poll, about 9 in 10 Israelis report an unfavorable view of Iran. Netanyahu reiterated his longstanding concerns on Sunday about allowing the country to have any nuclear capability whatsoever, including the ability to generate electricity using nuclear power.

Netanyahu spoke on CBS the same day that a new video appeared to showan American citizen executed by the Islamic State, also known as ISIS. Netanyahu called the apparent killing the latest chapter in "a global conflict" where Iran and the Islamic State present the same threat to Western democracies.

"Basically, the Middle East is awash with militant dissidents, led by al Qaeda and the ISIS on the Sunni side … [and] Iran and Hezbollah on the Shiite side,” Netanyahu said, referring to the two branches of Islam. “The last thing we want is to have any one of them get weapons of mass destruction.”

Ongoing tensions between the U.S. and Israel were exacerbated recently by reportsthat President Barack Obama sent a letter to Iran Supreme Leader Ayatollah Ali Khamenei, in which the president described how the U.S. and Iran might advance their common interest in defeating the Islamic State.

For Israel, the prospect that its most important ally, America, would collaborate with its sworn enemy, Iran, could signal that the Obama administration may consider the fight against the Islamic State a higher priority, at least in the short-term, than threats to Israel's safety.

But rather than dwell on his chilly relationship with the Obama White House, the prime minister on Sunday emphasized the broad support Israel enjoys in Congress and among the American public. “We can have disagreements between governments, that happens in the best of families,” he said. “But we are one family.”

(The Huffington Post)

TOKYO (AP) — Japan's economy unexpectedly shrank in the third quarter as housing and business investment declined following a tax hike, dragging the country into a recession and further clouding the outlook for the global economy.

The world's third-largest economy contracted at a 1.6 percent pace in the July-September quarter, the government said Monday, contrary to predictions it would grow after a big drop the previous quarter. The surprise deepens uncertainty when China's growth is slowing and the 18-country eurozone grew only 0.2 percent in the same quarter.

The gross domestic product figures showed across-the-board weakness in demand among consumers, manufacturers and builders. Many individuals and companies had spent money before the sales tax was hiked in April from 5 percent to 8 percent, and spending has languished since then.

"The impact of the sales tax was much more severe than expected," said Junko Nishioka, an economist at RBS Japan Securities.

Housing investment plunged 24 percent from the same quarter a year ago, while corporate capital investment sank 0.9 percent. Consumer spending, which accounts for about two-thirds of the economy, edged up just 0.4 percent.

Given the contraction, Prime Minister Shinzo Abe is expected to put off another sales tax hike planned for next October, slowing progress on efforts to rein in Japan's government debt, the largest among industrialized nations.

He also will likely make the dismal GDP reading the basis for calling a general election in mid-December to underpin the public mandate for his "Abenomics" policies of lax monetary policy, fiscal spending and structural economic reforms.

Japan emerged from its last recession just as Abe took office in December 2012, vowing to restore the nations' economic vigor after two decades of stagnation.

But the country is struggling to regain momentum as its population declines and ages. Apart from its automakers, many of its manufacturers have lost their leading edge in innovation while shifting production to cheaper locations offshore.

Household incomes, meanwhile, peaked more than a decade ago, and a growing share of workers are having difficulty making ends meet with part-time, contract work. Wage increases — mostly limited to a small share of workers in big-name companies — have lagged behind inflation.

Most economists had forecast that Japan would expand at about a 2 percent pace after a sharp 7.1 percent annual pace drop in April-June immediately following the tax hike. A recession commonly is regarded as two straight quarters of economic contraction. Compared to the previous quarter, GDP declined 0.4 percent.

While delaying the next tax hike could undermine confidence in Japan's ability to repair its battered finances, Abe and his advisers appear to view the threat to Japan's recovery as the more urgent risk.

In early 2013, Abe and Bank of Japan Gov. Haruhiko Kuroda united in seeking to end the long spell of deflation that they say is discouraging companies and consumers from spending money.

So far, price increases have fallen short of their inflation target of 2 percent, with most of the increases coming from the sales tax hike and from higher costs for imports due to extreme monetary that has helped drive the value of the Japanese yen to seven-year lows against the U.S. dollar.

On Oct. 31, Kuroda announced the central bank would step up its asset purchases, accelerating Japan's "quantitative easing" just as the U.S. was ending its own asset purchases. Despite that surprise move, Kuroda has insisted that the economy is still in the midst of a "moderate recovery."

The BOJ's move, along with a government decision to shift a large share of the public pension fund investments out of government bonds and into higher yielding but riskier shares, pushed Japan's share benchmark to seven-year highs this month.

But in morning trading, the Nikkei 225 stock index tumbled 2.6 percent to 17,037.65.

Monday's data is preliminary, with a revision due Dec. 8. Since some of the decline was due to reductions in inventory, things may not be as bad as the GDP reading suggests, economists said.

Pierre Ellis, senior economist at Decision Economics in New York, said increased business orders in the past three months for machinery, industrial equipment and other big ticket items should boost output in the coming months.

Abe already was expected to announce additional economic stimulus this week. The dismal Monday morning data will probably lead him to announce a package worth about 3 trillion yen to 4 trillion yen ($26 billion to $35 billion), Nishioka said.

That could include subsidies to low-income families and help for small and medium-sized companies that rely on imported components and energy that have suffered as the Japanese yen has weakened from about 80 to the dollar to its current level of about 116 to the dollar — a move that has helped exporters.

Critics say Abe has failed to deliver on promises for drastic reforms of labor regulations, the tax system and the health industry, among other areas. Meanwhile, companies have largely refrained from passing windfall gains from share price gains and surging profits on to their workers in the form of higher wages.

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AP Economics Writer Christopher S. Rugaber in Washington contributed to this report.

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