Britain back on board for action in Iraq

September 25, 2014

An Iraqi SWAT trooper covers his ears as he fires a mortar bomb during clashes with Islamic State militants, north of Muqdadiyah

U.S. air strikes in Syria continued overnight with a monitoring group saying at least 14 Islamic State fighters were killed.

Having sat out so far, Britain said it would join strikes against militants but only in Iraq for now – which has asked for such help – not Syria. IS holds swathes of land in both countries.

Parliament is to reconvene on Friday and, unlike last year when action to stop Bashar al-Assad using chemical weapons against his own people was voted down, all the main parties are now broadly in support. Prime Minister David Cameron’s cabinet will meet today to finalise what they will put to parliament tomorrow.

Washington has secured the support of Saudi Arabia, UAE, Jordan, Bahrain and Qatar – crucial Arab support which was largely absent for the 2003 invasion of Iraq.

Turkey appears to be inching toward greater involvement after the IS group freed 46 Turkish hostages but it remains unclear how far it will go. Its long border with Syria make it strategically vital and it is home to a major U.S. base at Incirlik.

The U.S. military has warned this will be a long campaign against a well-organised, well-armed and well-funded movement. With no talk of putting troops on the ground, it is unclear whether air attacks alone can defeat Islamic State.

Its positions were pounded by planes on Wednesday but the strikes did not halt the fighters’ advance in a Kurdish area where fleeing refugees told of villages burnt and captives beheaded.

European Central Bank President Mario Draghi is in Lithuania speaking on the theme “Single Market, Single Currency, Common Future”. He has already told a Lithuanian newspaper that the euro zone will grow only modestly in the second half of the year and repeated his pledge that the ECB will do more if necessary.

The speech sounds like an opportunity for him to reprise his call for euro zone governments to spend more or cut taxes in an effort to lift growth and inflation. First uttered in August, Draghi’s exhortation does not advocate the EU abandoning its debt limits but sees scope for public investment programmes and lower taxes, offset by balancing fiscal measures elsewhere.

The surprisingly low take-up at last week’s first round of cheap four-year loans offered by the ECB begs a number of questions – how low is demand for credit? Are banks cowed by the upcoming stress tests ahead of which they are supposed to be building capital? Does this make an eventual leap to QE more likely?

To highlight the problems, euro zone money supply data this morning are likely to showcase yet another fall in bank lending to companies and households.

The ECB is playing up the prospects of a second round in December after the stress tests are finished. But having pledged to add the best part of 1 trillion euros to its balance sheet to rev up the euro zone economy, it can’t have been happy to see only 83 billion euros of loans taken.

Bank of England Governor Mark Carney is also due to deliver a setpiece speech. One supposition had been that a Scottish vote for independence (no longer a threat for the foreseeable future) and the chaos that might have followed would have deterred the Bank from raising interest rates. As it is the consensus is that there will be no move until next year anyway given a near total absence of wage growth.

The Turkish central bank has come under political pressure to cut interest rates ever since it whacked them up early this year to defend the lira.

The bank did cut its overnight rate but not its benchmark one-week repo rate at its last meeting in late August. Since then, central bank governor Erdem Basci has said too large a reduction in interest rates would stoke inflation, already running at the upper limit of the bank’s forecasts, and that it might prompt Turks to hold dollars, crimping economic recovery and pushing the lira down. So the tug of war continues.

The Czech central bank also meets. It has held interest rates virtually at zero since 2012 and has intervened to weaken the crown, in a parallel de facto easing of policy. It is expected to aim to keep the currency weak into 2016 with no sign of inflation returning.

Ukrainian President Petro Poroshenko holds a news conference, a chance to explain his plans to give limited and temporary self-rule to separatists and his long-term hopes for European integration despite Vladimir Putin’s pressure on the EU association agreement that parliament has just ratified.

NATO said on Wednesday it had observed a significant withdrawal of Russian forces from inside Ukraine, but many Russian troops remain stationed nearby.

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