it is needed. business conditions for small businesses currently, expectations about future sales seem to be more important than expectations about the availability of credit in driving business spending decisions and demand for business loans. recently, small business owners appear to have become more optimistic about their outlook for sales. for example, in recent nfib surveys, the net percentage of respondents who expected their sales to increase rose to levels not seen since mid - 2007 ( figure 3 ). more generally, small business owners surveyed by the nfib indicate that they currently expect business conditions to improve in the near future. in fact, the net percentage of small business respondents who expected business conditions to improve six months from now climbed in february to its highest level in several years ( figure 4 ). even with some backtracking in march, this barometer of business conditions remains at a level not seen since mid - 2007. other survey data collected by the nfib are also consistent with more - favorable conditions for small businesses. the percentages of small business respondents who believe it is a good time to expand, and who plan to make capital expenditures over the next three to six months, have recently risen to levels not seen since mid - 2007. the bankers ’ perspective on lending to small businesses mirroring small business respondents views with respect to credit conditions are bankers ’ views on credit standards and their terms of credit. to consider the bankers ’ perspective, i will draw on two other federal reserve surveys : the senior loan officer opinion survey on bank lending practices ( sloos ) and the survey of terms of business lending ( stbl ). with regard to credit standards, we found that about 5percent of banks, on net, reported in january that they had eased their bank ’ s lending standards on commercial and industrial loans to small firms in the fourth quarter of last year ( figure 5 ). 7 a similar net fraction of banks see alicia robb and e. j. reedy ( 2011 ), an overview of the kauffman firm survey : results from 2009 business activities ( kansas city, mo. : ewing marion kauffman foundation, march ). in this and later figures, shaded bars indicate periods of business recession as defined by the national bureau of economic research. bis central bankers ’ speeches reported having eased standards in the previous survey. this finding is consistent with small business owners ’ perceptions that credit conditions have eased somewhat. for those small business owners whose loans or credit lines were approved, the terms of credit – the

over time by borrowing today, the more so the higher the expected gains in disposable income. a process of gradual real exchange rate appreciation, supported by strong, domestically driven output growth and temporarily accompanied by relatively large current account deficits, would seem fully in line with what the theory of convergence suggests. according to mihaljek, d. and m. klau ( 2008 ), over the period from the mid - 1990s to the first quarter of 2008, the balassa - samuelson effect would explain around 24 % of the cee inflation differentials vis - a - vis the euro area. for more details, see, “ catching - up an inflation in transition economies : the balassa - samuelson effect revisited ”, bis working paper. bis central bankers ’ speeches but in several countries, the process of real convergence proved itself difficultly sustainable. during the period before the global crisis, expectations were overly optimistic, and investors and consumers engaged in economic behaviour that generated excess domestic demand, strong credit growth and inflationary pressures. as in many other markets, risk premia were squeezed, leading to asset price misalignments ( particularly in the housing market ) and over - indebtedness in a context of abundant global liquidity and a strong appetite for risk. foreign direct investment flows often focused on the non - tradable sector, for example, construction and financial sector intermediation. furthermore, foreign currency lending grew rapidly, leading to increasing balance - sheet mismatches. as a result a number of countries experienced notable departures from price stability and wide external imbalances that eroded competitiveness – developments that went over and above what could be justified by “ equilibrium ” catching - up. macroeconomic policies added to the risks. in countries with a fixed exchange rate, independent monetary policy was not available, resulting in monetary policy conditions that became too expansionary. in principle, this could have been compensated by very tight fiscal policy. but with the benefit of hindsight, fiscal policies were often insufficiently restrictive or even loose. the global crisis revealed these weaknesses with particular virulence. when capital flows dried up in late 2008 and trade collapsed, real output declined sharply, in some cases leading to severe recessions. with the main and remarkable exception of poland, the region was severely hit by the crisis. many observers feared then that, if the crisis were allowed to run its course, it could be near catastrophic for the region and extremely dangerous for the european banking system