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n Europe’s struggle to pre-vent low inflation from de-railing an already weak eco-nomic recovery grew evenmore challenging as con-sumer prices weakened to afive-year low in August. A1n U.S. household spendingfell in July with cautious con-sumers potentially holdingback economic growth. A2n Consumer prices rosemodestly in July, showinginflation remains in check asthe Fed winds down itsbond-buying program. A2n Apple and Google arecourting children as youngas 13 years old to createapps for mobile devices. A1n Peter Hancock takes overfrom Robert Benmosche aschief executive of AIG. B1n Boeing racks up commer-cial-jet orders, but still hasnine flagship 787 Dreamlinersit can’t move off the lot. B1n U.S. utilities are pushingelectric cars to drive uppower demand, but plans tospread costs for chargingstations are controversial. B1n Financial analysts arepushing back against a loop-hole where public companiesaren’t required to disclosewhen cash is given to politi-cal parties and candidates. B1

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InsideNOONAN A13

AmericanDiversity andThe Wild West

Russian President Putinaccused Kiev and its allies

of backing peace talks only asa smoke screen to continue at-tacks, while sidestepping Mos-cow’s role in the conflict. A1 Ukrainian forces suffered amajor setback in their effortsto isolate a rebel-held city. A6n A federal judge blockedpart of a Texas abortion lawthat gained national attentionafter a lengthy filibuster. A5n The U.K. moved to makeit easier to seize people’spassports to counter thethreat of Islamist extremists. A7n Traditional rivals in theMiddle East are aligning tocounter the Islamic State. A1n Obama is considering de-laying expected changes toimmigration policy until af-ter the midterm elections. A3n Atlantic City, which oncehoped to challenge Las Ve-gas, is searching for ways tohalt a downward spiral. A3n Closing arguments weremade in the corruption trialof former Virginia Gov. BobMcDonnell and his wife. A4n The National Park Servicewill now require permits forgroups hiking or running theGrand Canyon “rim to rim.” A5nDied: John A.Walker Jr., 77,head of spy ring for the Soviets.

Tech TalentHunt TriesNew Venue:Middle School

FRANKFURT—Europe’s strug-gle to prevent ultralow inflationfrom discouraging business in-vestment and undermining thecontinent’s fragile economydeepened as consumer pricesdropped in August to a five-yearlow.

The data released Fridaykeeps pressure on the EuropeanCentral Bank to take more dra-matic stimulus measures toboost demand and inflation, andcomes just days after ECB Presi-dent Mario Draghi warned of the

risks of investors’ falling expec-tations for consumer-pricegrowth. His remarks were seenas suggesting the ECB is movingcloser to large-scale purchasesof public and private debt,known as quantitative easing, ata time when the U.S. Federal Re-serve is nearing an end of itsstimulus program.

Most analysts expect the ECBto refrain from taking that stepwhen it meets on Thursday, butsome economists expect smallereasing measures, such as ratecuts, to underscore the ECB’s re-solve to act.

Consumer prices in the eurozone grew 0.3% in August fromthe previous year, the EuropeanUnion’s statistics office said Fri-day, down from 0.4% in July andfar below the ECB’s target of in-flation just below 2%. Much ofthe decline reflected falling en-ergy prices. Prices grew 0.9%when food, energy and othervolatile items were excluded, upa bit from July. That removessome of the urgency for the ECBto respond as soon as next week.

Still, “the euro zone is one bigshock away from deflation,” said

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BY BRIAN BLACKSTONE

Falling Prices Threaten to SinkFragile Recovery in Europe

In the brutal calculation of Middle Eastpolitics, the baseline for friendship has al-ways been simple: The enemy of my enemy ismy friend.

By that standard, the Islamic State ex-tremist group is creating friendships aplenty.An odd set of bedfellows or potential bedfel-lows, transcending geographical, ideologicaland alliance bounds, is emerging from theranks of those threatened by what many seeas the most dangerous militant movement ina generation.

BY GERALD F. SEIB AND BILL SPINDLE

STRANGE BEDFELLOWS

Brutal Rise of Islamic StateTurns Old Enemies Into New Friends

The rivalry between AppleInc. and Google Inc. to dominatethe smartphone business is fuel-ing the technology industry’snewest talent search: softwareprodigies as young as 13 whoare creating apps for their mo-bile devices.

Grant Goodman sensed anopportunity when Apple re-moved the preloaded YouTubeapp from its iPhones last year.He quickly built an advertising-free app called Prodigus to playonline videos “fast with no com-promises.”

Prodigus, Grant explains, washis second iPhone app. He re-cently built a third, a gamecalled “iTap That,” and incorpo-rated a company, Macster Soft-ware Inc. to manage the busi-ness. Next week, the 14-year-oldwill take a break from his busi-

Pleaseturntothenextpage

BY DAISUKE WAKABAYASHI

‘Old Ironsides’ Sets Sail for a Three-Year Restoration

StephanSa

voia/A

ssociatedPress

Biff Matthews is up to hiseyeballs in knuckle busters.

The 68-year-old Ohio busi-nessman has stockpiled morethan 8,000 of the old-fashionedcredit-card-processing machines,known for their tendency toscrape the fingersof the merchantswho operate them.

Mr. Matthewskeeps the ma-chines boxed upindividually on theshelves of his12 ,000-square-foot warehouse,ready to beshipped at a moment’s notice.He has enough spare parts to as-semble another 2,000 if need be.

“I’m not going to run out,” hesays.

There is little danger of thathappening soon. Knuckle busters

were overtaken more than twodecades ago by electronic card-processing devices as the pay-ment apparatus of choice atcheckout counters around theworld.

“You mention a knucklebuster, imprinter or chunk-a-chunk to a majority of today’s

merchants andthey give you thatinquisitive look,saying ‘a what?’ ”says Mr. Mat-thews.

But Mr. Mat-thews has beenringing up a fewmore sales lately.He credits a series

of high-profile securitybreaches—including an incidentthat prompted restaurant chainP.F. Chang’s China Bistro Inc. inJune to start using manual im-printers at its 200 restaurants—

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BY ROBIN SIDEL

Will Credit-Card Breaches Give‘Knuckle Busters’ a Second Crack?

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Manual Devices Still Come in Handy,Some Say; ‘Like Trying to Sell Typewriters’

A knuckle buster

Ukraine’s showdown withMoscow deepened as RussianPresident Vladimir Putin lashedout at Kiev and its allies Fridaywhile sidestepping allegationsthat his troops are pushingdeeper into Ukraine’s territory toaid separatist rebels.

Hopes for a diplomatic solu-tion, already waning, dimmedfurther as Mr. Putin accusedUkraine and its Western support-ers of backing peace talks only asa smoke screen to continue Kiev’sattacks against fighters in theeastern part of the country.

European leaders looked set toorder new sanctions against Rus-sia this weekend, and Ukraine’sgovernment proposed repealing alaw banning membership in mili-tary blocs and moving towardjoining the North Atlantic TreatyOrganization, which Russia con-siders a threat to its interests.

The escalating crisis under-lines a key issue facing NATO al-lies gathering next week for atwo-day summit: Will Russian ag-gression prompt alliance mem-bers to pay more for defense?

“If a nation relies on the alli-ance as a bit of a whole-life insur-ance policy for security,” saidDouglas Lute, U.S. ambassador toNATO, “you have to pay the pre-miums of that life insurance.”

Americans have long com-PleaseturntopageA6

BY NAFTALI BENDAVID

UkraineSimmersAs PutinDigs InNATO MembersWrestleWith LowerDefense Spending

Shiite Muslim Iran and Sunni MuslimSaudi Arabia, for instance, have been bitterfoes since at least 1979, when the Iranian rev-olutionary government of Ayatollah RuhollahKhomeini hoped to inspire similar revolutionsin the Sunni world. But both countries nowfear Islamic State’s armed radical Islamistmovement, which seeks to usurp their ownclaimed leadership of the Muslim world.

That led Iran and Saudi Arabia to indepen-dently back the same candidate to lead Iraq,in a push for a new government that mightunite Sunnis and Shiites to battle IslamicState. This week, Iranian and Saudi diplomats

held a rare meeting to consult.Turkey has long distrusted and worked

against ethnic Kurds, especially a violentsplinter group known as the PKK that oper-ates out of the mountainous environs ofnorthern Iraq. But the Turks looked the otherway when Syrian Kurdish militias affiliatedwith the PKK played a starring role in therescue from Islamic State fighters of thou-sands of Yazidis stranded on a mountainside.

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A Cooling-Off Period in Gaza

Reuters

AFLOAT: The USS Constitution, a hero of the War of 1812, was towed through Boston Harbor before it heads to dry dock next year. In Baltimore, thecity celebrated the 200th anniversary of repulsing the British attack on that city in that war. That attack inspired of ‘The Star-Spangled Banner.’ A4

WATER’S FINE: With a cease-fire in place, Gazans go for a swim; inIsrael, meanwhile, Netanyahu faces frustrations over the conflict. A7

Notice to ReadersWSJ.com will publish

throughout the weekend andLabor Day. The Wall StreetJournal print edition won’tbe published Labor Day.

Frustrations grow in Ukraineover West’s commitment........ A6

Kiev faces setback in battle forrebel-held city................................. A6

Threat of breakaway extremist state raisesnew worries in Middle East............................... A7

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