higher lending rates seen in countries with prolonged npl problems weigh negatively on credit demand. higher lending costs drive firms to utilise internal sources of financing, resulting, on average, in the avoidance of large investment projects. a reduction in npls has the reverse effect, improving the willingness, incentives and ability of economic agents to invest in new projects. the practical implications of npls for growth opportunities are evident when looking at european data on bank lending to non - financial corporations and households. the contraction of bank lending is particularly pronounced in countries suffering from high levels of npls. at the same time, member states with high npl ratios have also experienced below average gdp growth, consistent with the below - average propensity to invest that npls generate. the opposite picture is found for the member states that exhibit a lower level of npls. therefore, the effective management of npls is of the utmost importance for a country ’ s growth opportunities. banks − benefiting from improved asset quality, profitability and liquidity − will be in a better position to reduce the cost of credit risk and lending spreads. this amounts to a pivotal development for the competitiveness of the non - financial corporate sector in an international environment of ultra - low interest rates. it also facilitates the reduction in the debt servicing costs of households that mitigate the impact of reduced household gross disposable income. the above is to the benefit of the real economy as the unlocking of funding and the improved business climate impacts positively on the setting - up of new businesses, investment, employment and growth. in sum, we would move to a virtuous circle where improved asset quality positively affects gdp growth, in turn leading to a further reduction of npls and so on. in conclusion, greece is poised to return to economic and financial normality and to shift to a new, outward - looking and sustainable growth model, based on tradable goods and services. the economic adjustment and structural improvements over the past years have opened up significant investment opportunities. to reap the benefit of these opportunities though, there are certain preconditions : first, the completion of the second review with no further delay ; second, the consistent and determined implementation of the programme in conjunction ; third, a more realistic approach by all parties to the fiscal mix and government debt burden. such developments, together with the cleaning - up of banks ’ balance sheets will set in motion a virtuous circle, paving the way to the full return of the

##ly by 25 per cent, intensifying the debt dynamics and contributing to the self - reinforcing nature of the crisis. in the remainder of the periphery – especially ireland, spain and cyprus – it was the banking sector that generated a sovereign crisis, not the other way around as in greece. capital inflows were channeled mainly through national banking systems to help finance construction. private indebtedness financed by the capital inflows surged, leaving the countries prone to the unwinding of the capital inflows. as with the case of greece, the inflows fueled large competitiveness losses as rises in the prices of non - tradables spilled over to the tradables sector, setting the stage for a boom - bust cycle. in these countries, the bust came through the banking systems. what happened was that the large size of the banks relative to national gdps undermined confidence in the sovereigns, creating doom - loops between banking systems and the sovereigns. to explain why this happened, consider the following difference between banks in the united states and those in the euro area. although the largest banks in the euro area and the united states are of roughly the same size in terms of euro - area gdp and u. s. gdp, respectively, the largest euro area banks represent a much larger share of any individual national economy compared with the situation of u. s. banks. consequently, banking crises in individual euro - area countries placed large fiscal burdens on governments, calling into question their solvency and making the use of counter - cyclical fiscal policy infeasible. in light of the exposure of the banks to the debt of their sovereigns, the deteriorating fiscal positions, in turn, affected the banks. the lesson from this experience was clear ; an effective economic and monetary union needs to include a banking union. a crisis - induced economic adjustment the euro - area crisis served two vital purposes. first, it acted as a wake - up call to policymakers in economies that had become uncompetitive. second, it brought to the surface fundamental weaknesses in the eu ’ s institutional structure. consequently, since the onset of the crisis, policymakers in the stressed countries have made significant progress in addressing fiscal and external imbalances. at the same time, institutional flaws in economic and financial governance are being addressed. in what follows i will first focus on the adjustment that has taken place in greece. consider, first, fiscal adjustment. from 2009 to 2013