The document analyzes the economic conditions and policies of the Eurozone and US following the financial crisis. It finds that while inflation in the Eurozone has been falling since 2012, unemployment remains high. Fiscal policies have been fragmented in the Eurozone compared to the more centralized approach in the US. The document recommends a combination of quantitative easing implemented cautiously along with targeted structural reforms to address issues like high unemployment and low growth in the Eurozone.

1. Monetary
&
Fiscal Policy
What does the Eurozone need?

2. Inflation in the Eurozone
• The annual inflation
is -0.1% (2015)
• Inflation has been
falling since 2012
due to?
• Economic
contraction
• Banks holding
onto cash
-1
0
1
2
3
4
5
2000Jan
2001Jan
2002Jan
2003Jan
2004Jan
2005Jan
2006Jan
2007Jan
2008Jan
2009Jan
2010Jan
2011Jan
2012Jan
2013Jan
2014Jan
CPI%
Source: Bloomberg

3. GDP Growth (%)
• GDP average in
the Eurozone is
1,55% from 1995-
2014
• Lowest -5,5 %
• GDP remains low
after the crisis
-6
-4
-2
0
2
4
6
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
2014Q1
GrowthPercentage
Source: Bloomberg

4. Change in GDP Growth (%)
2013 -2014
• Ireland
• A year after 3-yr
bailout program
• Debts still remain
after bail out of
banking sector
• Software and
pharmaceutical
• Tax
Source: Bloomberg

5. Unemployment %
2008 Vs. 2014
• Eurozone: 11% -
12%, from 8%
• Spain and Greece
– high
unemployment
• Germany – less
unemployment
• Labour reform
0,00
5,00
10,00
15,00
20,00
25,00
30,00
Euro unemployment by country 2008 Euro unemployment by country 2014
%Unemployment
2008 2014
Source: Bloomberg

6. Government Imbalance
• Deficit
• Spain, Greece
• Germany
zero/near zero
balance
Source: European Commission

7. EU Fiscal Policy
Government Spending
• Initially Greece
highest
• Currently lowest
after austerity
• Portugal correction
Tax rates
• Relatively stable
• Portugal reduced
slightly
• Greece forced to
increase
-10,0%
-5,0%
0,0%
5,0%
10,0%
15,0%
2009 2010 2011 2012 2013
Germany France Greece Spain Portugal Italy Ireland
Government Spending as a % of GDP
%ofGDP

8. EU Monetary Policy
• Rates:
• Lending: 0,3%
• Refi: 0,05%
• Deposit: -0,2%
• Open market
operations (3
tranches – 2009
€60bn, 2012 €529bn
and 2014 €250bn)
• Reserve ratio is 1%
(2%)
• Mario Draghi –
“whatever it takes”
0
0,5
1
1,5
2
2,5
3
-0,6
-0,4
-0,2
0
0,2
0,4
0,6
0,8
2008 2009 2010 2011 2012 2013 2014
EffectivePolicyRates
YOY%GDPChange
EUR Interest Rates vs. GDP Growth
Euro-zone Real GDPRate ECB Effective Policy Rates

9. US Fiscal Policy
• Decrease in
government
spending
• Tax Rates (2013)
• Inc higher
brackets
• Dec lower
brackets
• result =
redistribution
• Government: 80%
• Household: -5%
14
14,5
15
15,5
16
16,5
17
17,5
18
2008 2009 2010 2011 2012 2013
%GovernmentSpending
US Government Spending as a % of GDP
Gov´t Spending (% of GDP)
$0,00
$2,00
$4,00
$6,00
$8,00
$10,00
$12,00
$14,00
$16,00
$18,00
$20,00
Trillions
US Government Debt vs. Public Debt
Government Debt Public Debt
2008 2009 2010 2011 2012 2013 2014

10. US Monetary Policy
• Stable low US rates
• Introduction of QE in
2008
• Total QE spend:
$4,5T
• GDP growth
recovered since the
crisis
0,00
0,20
0,40
0,60
0,80
1,00
1,20
1,40
1,60
-3,00
-2,00
-1,00
0,00
1,00
2,00
3,00
2008 2009 2010 2011 2012 2013 2014
US Interest Rates vs. GDP Growth
Real GDP (yoy %) Policy Rates
Interest
GDPGrowth%
QE1 Dec08-March10 QE2 Nov10-June11 QE3 Sept12-Oct14
TS 0,3 0,6 0,9
MBS & AD 1,35 0,79
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
1,8
$Trillion
Quantitative Easing

11. EU vs US
EUROZONE US
Central Bank
Mandate
Inflation Inflation and
Unemployment
Fiscal Policy Fragmented Centralized
Reserve Ratio 1% 10%
QE Start ($1,4T – 2015 –
2016)
End ($4.5T – 2008 –
2014)

12. Unemployment vs Inflation
• US policies have
been effective:
• CPI
• Unemployment
• Rates
-4
-2
0
2
4
6
8
10
12
14
EUR Unemployment Rate (%) US Unemployment Rate (%)
EU CPI US CPI
Percentage

13. EUROZONE
Potential Solutions
Solutions Pro’s Con’s
Quantitative
Easing
• Confidence
• Decrease unemployment
• Alleviate deflation
• Targeted
• Policy Lag
• Exit strategy
• Hyperinflation
Fiscal Union • Centralized fiscal policy • Realistic?
Structural
Reform
• Low unemployment • Vague
Austerity • Reduce deficit • Contractionary policy cycle?

14. Our Recommendation
Quantitative Easing with Targeted Structural Reforms
• Cautious in implementation
• Exit planning
o Method
o Timing
• Structural reforms implemented alongside
o Labour market
o Innovation

15. Our Recommendation
Quantitative Easing
• Cautious in implementation
• Exit planning
o Method
o Timing
• Structural reforms implemented alongside
o EG: Spanish labour market rules
o Innovation
o Benefits