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The June 28, 2012 EU deal is expected to increase the role of the European Central Bank in addressing the eurozone crisis with powers of banking regulation and supervision and direct capital aid to Spanish banks. Mario Draghi's experience with the Bank of Italy and in dealing with different Italian governments has prepared him for the difficult task of making sure governments in the eurozone make responsible decisions for eurozone finances.

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NYT's Landon Thomas gives this exceptional report on how Deutsche Bank changed from a lender to the German auto industry and safe banking practices to enter the derivatives business and other opaque financial products that led to taking on huge risks. Deutsche Bank has agreed on Dec. 22, 2016 to settle with the U.S. Justice Department paying a fine of $7.2 billion for practices relating to faulty mortgage securities. This report says the problems started in 1995 with Deutsche Bank's leadership hiring Edson Mitchell of Merrill Lynch to promote the investment banking business at Deutsche Bank. Mitchell hired two derivatives traders Broeksmit and Anshu Jain. Mr. Mitchell died in plane crash in 2000 when he was 47 years age, Mr. Broeksmit committed suicide in 2014, 58 years in age, Mr. Anshu Jain, 53 years old, is the only surviving person of the three. Under Mr. Jain Deutsche Bank assumed more and more risk, and was involved in complex and opaque financial products leading to the toxic mortgage crisis, and manipulation of the lending rate for London banks.  It also lent $300 million to Donald Trump's businesses. Most of the profits generated from this venture have evaporated, with analysts estimating $15 billion in fines and penalties owed of the $20 billion that these ventures generated. Not counting the serious damage to the bank's reputation in Germany and the U.S. This report points out the role played by the CEO from 2002 to 2012 of Deutsche Bank, Josef Ackermann, in encouraging these ventures converting the bank from its original loan as a contintental lender to business to a bank selling opaque financial products for most of its profits. Landon Thomas also describes the events and days leading up to the suicide by Broeksmit, including a visit to a psychiatrist and Broeksmit's facing enormous stress about the investigations underway in Germany and the U.S. looking into the opaque financial products and practices of Deutsche Bank. This is also a cautionary tale about what happened in banking from the late 1990's leading to the collapse in 2008, leading to the problems of today- the need to rescue the economy in 2008-2009 and the low rate world that ensued damaging the savings of ordinary people, the infrastructure that was never built, the parallel crisis of the hollowing out in manufacturing as a false prosperity boomed in banking and finance. In a sense it is also a story of everyday lives that were damaged in the high flying boardrooms of finance in New York, London and Frankfurt. The revolving door between regulators and the banks made it harder to monitor and control banking risk letting this story unfold over decades, damaging the credibility of governments and the established political parties without clear alternatives from outside; as the dominance of Wall Street executives in the new outsider Trump administration shows.  ...

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ECB executive board member Peter Praet, says that the oil price drop could mean negative inflation for a large part of 2015. He told German financial newspaper Borsen Zeitung, that inflation could be lower than the 0.7% forecast by ECB economists. The risk is that businesses would be reluctant to invest in such an environment. Praet said the danger is that businesses and households would reduce their long term growth expectations and adapt to low growth and low inflation. For the ECB the question will be has it done enough to avoid this.

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The ECB president Draghi announces an interest rate cut, lowering the interest rate in the eurozone to 0.15% from 0.25%. He also lowered the rate on overnight bank deposits at the ECB to a negative 0.10%, to encourage banks to lend at a time when credit is tight for businesses in the eurozone. The eurozone faces a risk of deflation with low growth in the eurozone economies. Popular discontent was reflected in eurozone elections in France, UK, Greece and Spain.

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The inflation rate in the eurozone showed a decline of 0.2% in December 2014, showing the first signs of deflation. This is the first sign of deflation since 2009. The unemployment rate for the eurozone remained at 11.5% in November, with the rate in Germany improving to 6.4% in Dec. from 6.5% in Nov., but unemployment reaching 13.4% in Italy. Dutch finance minister Jeroen Dijsselbloem, points to low energy prices, and core inflation data showing that excluding energy and food prices the core inflation rate increased to 0.8% in Dec. 2014 compared to 0.7% in November 2014.

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GDP growth in the eurozone was 0.3% for the 4th quarter 2014. For 2014 eurozone GDP growth was 1.4%, according to Eurostat. Growth in GDP for Germany was 0.7% for the 4th quarter and 2.8% for 2014. Retail sales in December were particularly good in Spain and Germany, with sales up 2.8% for the eurozone over the prior year. Italy's GDP growth was stagnant and France's was 0.1% for the 4th quarter, showing that Germany and Spain are leading the way for eurozone recovery.

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Financial problems at Banca Monte dei Paschi di Siena and the Italian government's role has introduced an element of uncertainty in the upcoming election in Italy. This has helped former prime minister Silvio Berlusconi recover in the polls. In Spain the newspaper El Pais published information from the ruling Partido Popular financial records showing hidden payments of 25,200 euros a year between 1997-2008. The opposition leaders asked for Rajoy's resignation and Rajoy did not address the matter directly till a joint appearence with Merkel in Berlin, where he said: " I have exactly the same strength, the same courage, and I am just as determined to continue as prime minister to overcome one of the most difficult situations in Spain of the last 30 years." Rajoy has a solid majority in parliament, with his party firmly behind him. This is unlikely to affect the political situation in Spain.

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Criticism of the European Central Bank policies and Mr Trichet's role.

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Simon Nixon points out that most of the 490 billion in euros borrowed by European banks under the Long Term Refinancing Operation of the ECB in Dec. 2011 is for rolling over maturing debt, rather than buying of government bonds. European banks financing needs based on figures from Barclay's Capital are over 300 billion euros for the 1st quarter of 2012. This suggests huge demand for the Long Term Financing Operation in the next quarter. For Spain and Italy the newly created lending facility should lead to higher bond buying by small and midsized Spanish banks and Italian banks, as this will boost their profitability. Spanish bonds yield 5% and Italian bonds yield 6.5% and loans from the ECB using the bonds as collateral are available at 1% for three years, which makes this an opportunity for these banks to boost profitability. The proportion of government bonds of Spain of Spanish banks bank assets is 7% and the figure for Italian banks is 9%. Nixon says an increase of this ratio by three percentage points by Spanish banks would created additional demand for Spanish government bonds of 45 billion euros, which is a third of the issuance for 2012....

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Sommer describes the effect of a strong dollar on Apple's sales and profits from iPhones worldwide. This in turn affects Apple's share price. Corporate profits in the U.S. declined by 5.1% in 2015, according to the Commerce Department. Between the last quarters of 2014 and 2015 every dollar of Apple sales was reduced by 15 cents when converted into dollars, according to CEO Tim Cook.

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Martin Feldstein points out why the recent agreement for a "fiscal compact" is no more than an empty statement about fixing the eurozone's finances. In this respect it is no different than the Stability and Growth Pact it replaces, with serious weaknesses. Feldstein cites the weaknesses in the language of the agreement. Each eurozone country is required to limit its"cyclically adjusted" budget deficit to 0.5% of GDP and bring its debt down to 60% of GDP. Compliance will be performed by the European Court of Justice and fines imposed. In practice the questions loom large- for a country like Spain with a 23% unemployment rate, isn't all of the 6% budget deficit cyclical? Again the agreement says deficits are calculated "net of one-off and temporary measures." Under this provision a lot of the stimulus programs would be considered in the category of "one-off." Other language lets eurozone countries frame budgets based on "exceptional circumstances" and "periods of severe economic downturn." Italy has declining economic growth, does it make sense to have a large budget surplus in that situation to lower debt to GDP, and how does that goal relate to "exceptional circumstances."...

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523 European banks borrowed 489 billion euros from the European Central Bank on Dec. 21, 2011, under the newly created Long Term Financing Operation of the ECB. This is designed to meet the financing needs of European banks which are shutoff from normal financing of selling unsecured bonds to private investors because of market anxiety. Much of this is for replacing other outstanding ECB loans, with analysts estimating about 190 billion euros of new liquidity being injected into the banking system. This also has the effect of reducing the borrowing rates for government bonds. In Spain the government sold 5.6 billion euros of government bonds at an auction on Dec. 20, 2011, with the interest rates dropping from 5.7% a month earlier to 1.7%. Small and midsize banks in Spain helped surging demand by buying the bonds to use as collateral for three year loans from the ECB at 1%.

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Inflation in the eurozone is running at 0.7%, well below the target of 2%. In a opening speech for a 2 day conference organized by the ECB in May 2014, ECB president Draghi said the increase in the value of the euro since 2011 has made commodities like oil cost less in euros, contributing to lower inflation. A key concern referred to in Draghi's speech is the data from Spain and Portugal about the difficulty for business to get loans in Spain and Portugal. About 25% of Spanish businesses and 33% of Portgual's businesses have difficulty getting loans. Even profitable companies have difficulty getting loans. One way the ECB could tackle this is to make cheap loans available to eurozone banks conditional on the money being lent to businesses and not invested in government bonds, as has happened during prior ECB efforts to capitalize banks.

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Mario Draghi, president of the European Central Bank appears before the Economic and Monetary Affairs Committee of the European Parliament. He said the ECB had resumed normal lending to Greece's four major banks after the 18 billion euro recapitalization of the Greek banks by the government of Greece using bailout funds assigned for this purpose. Draghi tod the parliament: "The ECB will continue lending to solvent banks. We will avoid bank runs on solvent banks." At the same time he asked the EU to setup a deposit insurance fund for European banks and regulation of banks at the European level. On the actions taken by European leaders Draghi had strong criticism for the slow response always one step behind action needed and a day late, saying: "The next step is for our leaders to clarify what is the vision for a certain number of years from now. The sooner this has been specified the better. Dispel this fog." He described the configuration for the eurozone of the last ten years as unsustainable unless steps are taken, with leaders having to decide quickly what kind of eurozone they want to see. On Bankia's recapitalization by the Spanish government, Draghi said everybody winds up doing the right thing after many delays at the highest possible cost and price. It showed the need for centralization of supervision at the Europe wide level because Spain took too long to tackle the bad real estate loans at Bankia....

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France and Germany remained far apart on approach to banking regulation in Dec. 2012. Germany does not support regulatory powers of the ECB over Germany's small and midsized savings banks which lend to small businesses and consumers. France supports regulation of all 6000 banks in the eurozone by the ECB. Germany also raises concerns about how the regulatory powers of the ECB can affect its powers in setting interest rates. Germany does not support the British position for regulatory powers over London based banks to remain in Britain. Coming up with a new banking supervisor for European banks with regulatory powers of supervision is needed for Spain to get access to additional EU financing. This is also part of the new financial architecture for the eurozone, including deposit guarantees, which needs to be set up.

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The ECB's annual report for 2012 and the role the ECB under Mario Draghi played in the eurozone crisis in 2011-2012. The gains made in eurozone financial architecture, especially the agreement for the ECB as financial supervisor for European banks. The ECB sees itself as the supervisor for all European banks- the French position in the discussions in Brussels. The agreement of Dec. 12, 2012 only says banks with assets over 30 billion euros, or 20% of GDP of countries, or operations in two or more countries will come under supervision by the ECB.