support the modest economic recovery and ensure debt sustainability, while remaining in full compliance with the eu ’ s fiscal rules. with bond yields subject to volatility, high - debt countries in particular need to pay attention to risks related to a reversal of the current low interest rate environment. we have achieved significant progress over the past year, with banking union becoming a reality and with the single supervisory mechanism and the single resolution mechanism starting their operations. however, developments in greece in the first half of this year served as a reminder that the euro area architecture remains unfinished. as spelled out in the five presidents ’ report, a more complete union is necessary to make our monetary union in europe stable and prosperous. the economic and monetary union will notably need to strengthen its tools for managing and preventing the build - up of fiscal, financial and other macroeconomic risks. it is also necessary for the euro area to move towards completing banking union in order to create a truly single banking system and achieve its objectives of breaking the banksovereign nexus, making the financial system more resilient, and protecting the interests of taxpayers. in parallel, the authorities will need to decisively deal with remaining crisis legacies to create a better foundation for bank lending to the real economy. to further widen the scope for cross - border private risk - sharing in europe, the eu will have to make progress in developing a capital markets union ( cmu ). cmu will also play a key role in supporting european growth by diversifying sources of funding and increasing companies ’ access to financing. a long - term vision accompanied by an ambitious agenda for further action will be necessary in order to achieve the ultimate aims of cmu. a more complete union in europe will not only create a more prosperous and resilient euro area economy for its own citizens, but will also be in the best interests of the global economy. bis central bankers ’ speeches

. the new series of targeted longer - term refinancing operations ( tltro - ii ) are also providing additional stimulus by allowing banks to secure long - term funding under very attractive conditions, which they can pass on to their customers. in terms of quantities, bank lending to the private sector has been gradually recovering since early 2014. in the latest bank lending survey, banks continued to report that the ecb ’ s asset purchase programme ( app ) and the negative deposit facility rate had contributed to more favourable terms and conditions on loans, and are supporting lending volumes. 2 meanwhile, other survey data indicate improvements in the availability of external sources of financing for smes. 3 1 / 3 bis central bankers'speeches corporate bond issuance has also picked up since the announcement of the cspp in march, while the tltro - ii should help to further support bank lending volumes to the non - financial private sector. so our policy measures are clearly effective and are trickling down to the funding rates that matter most for the real economy, such as the ones faced by smes, which provide jobs for around two - thirds of those in employment in the euro area. 4 favourable financing conditions, along with other factors such as employment gains and improvements in the demand outlook, are expected to further support private consumption and investment expenditure going forward. investment however remains well below its pre - crisis levels and its sensitivity to the borrowing conditions faced by companies is lower than historical norms. according to the september ecb staff macroeconomic projections, annual real gdp growth is expected to increase by 1. 7 % this year, and by 1. 6 % in each of the next two years. turning to price developments, headline inflation increased in october to 0. 5 % in year - on - year terms, owing to a continued increase in annual energy inflation. so although price dynamics are improving, inflation remains at low levels – far below the level which we consider consistent with our price stability objective – reflecting past declines in oil prices and weak wage growth. underlying inflation in particular has yet to show clear signs of a more dynamic upward movement. the annual rate of hicp inflation excluding food and energy has hovered around 0. 8 % for the last three months as domestic cost pressures remain fundamentally weak. yet, as the effect of past oil price declines fades, annual hicp inflation is expected to pick up from 0. 2 % this year to 1. 2 % in 2017. moreover, we expect that as the recovery continues and economic