spending. the investment outlook is also positive, supported not only by a need to modernise the capital stock after years of subdued investment and an improving outlook for profitability, but also by highly accommodative financing conditions as our policy measures have passed through financial markets to affect the borrowing conditions of businesses and their customers. since june 2014, bank lending rates for euro area non - financial corporations have fallen by almost 120 basis points, and for households by over 100 basis points. lending rates for very small loans, which can be taken as a proxy for loans to small and medium - sized enterprises ( smes ), have declined by almost 190 basis points. the significant improvement in funding conditions for smes is especially encouraging as they provide two - thirds of total private sector employment in the euro area. heterogeneity of lending rates across countries has also fallen sharply. for example, the difference between the average lending rate for firms in countries that were severely affected by the crisis versus other countries has narrowed by about 100 basis points over this three - year period. the pass - through of monetary policy has become more even and less distorting. 1 / 3 bis central bankers'speeches these positive developments have been further supported by the second series of targeted longer - term refinancing operations, which have led to banks passing on the favourable funding conditions to their customers. 2 for more details on the impact of the tltros, see european central bank ( 2017 ), “ the targeted longer - term refinancing operations : an overview of the take - up and their impact on bank intermediation ”, economic bulletin, issue 3, box 5. the sharp reduction in bank lending rates has been accompanied by easier access to funding, as recent surveys have shown. 3 see the ecb ’ s euro area bank lending survey, july 2017, and the ecb ’ s survey on the access to finance of enterprises in the euro area, october 2016 to march 2017. moreover, bank lending volumes have been gradually recovering since early 2014. according to the latest survey on the access to finance of enterprises, covering the period from october 2016 to march 2017, euro area smes have continued to signal improvements in the availability of bank loans. market - based funding conditions, too, have improved significantly in response to the corporate sector purchase programme launched in june 2016. against the backdrop of this substantial easing of financing conditions, domestic demand has become the mainstay of growth in the euro area, making

##ness could be deprived of the benefits it should enjoy, in terms of increased market share, because of currency depreciation in competing countries. and if some countries were prepared to practice such “ beggar thy neighbour ” behaviour, why should others permanently open their borders to them? the point was not that the single market could not tolerate small exchange rate adjustments among a few of its members. it was that major currency volatility, of the type we had seen in the 1980s, would severely test the willingness of all to keep their markets open. and we can only imagine how, without the euro, currency markets would have reacted to shocks we have seen since its launch – the dotcom crash, the lehman bankruptcy, the sovereign debt crisis. the conditions for success in emu however, the case for the euro was always based on a trade - off. by reinforcing the single market in this way, it would lock - in the gains of economic integration and thereby benefit the whole union. but it would also deprive individual countries of adjustment tools for short - term shocks, notably their own exchange rate. thus for the trade - off to be beneficial, it was essential that those short - term costs were reduced as much as possible. this depended on certain conditions being fulfilled, which were established by mundell and later authors as part of the theory of optimum currency areas. they included : trade integration, to reduce the incidence of asymmetric shocks ; factor mobility and wage and price flexibility, to accelerate adjustment when shocks did hit ; and a system of risk - sharing, to reduce the costs of that adjustment process for individual members. but, in the euro area, it was clear that the importance attached to each of those conditions would not be the same. large - scale labour mobility was always unlikely, given cultural and linguistic barriers. it was also improbable that fiscal risk - sharing would reach u. s. levels, not least owing to the relatively larger role for national budgets as fiscal stabilisers. hence it was essential that euro area countries substituted for lower integration in these areas with stronger commitments in others. this meant four things in particular. the first was avoiding policy mistakes, such as boom - bust cycles emanating from weak prudential supervision. the second was building resilience to shocks through structural reforms and the continued deepening of the single market. the third was sound fiscal policies to provide sufficient fiscal buffers over the cycle. and the fourth was