excess liquidity is not progressively reduced as a result of reverse portfolio shifts. moreover, persistently high excess liquidity and strong credit growth could become a source of unsustainable asset price increases, particularly in property markets. to sum up, the economic analysis suggests that underlying inflationary pressures are still contained, but a number of medium - term upside risks to price stability need to be monitored closely. it is particularly important that these do not affect long - term inflation expectations. cross - checking with the monetary analysis continues to support the case for strong vigilance with regard to the materialisation of risks to price stability. i would now like to make a few remarks on fiscal policies. most countries have presented their budget plans for 2005. in some cases there are encouraging signs that member states are planning to correct excessive deficits or make progress towards close - to - balance or in - surplus budgetary positions. however, there are other cases where there are significant risks that commitments under the stability and growth pact will not be met, or where imbalances are on the rise and new breaches of the 3 % reference value might occur. it is therefore imperative that 2005 budgets prioritise consolidation where this is necessary. moreover, it is of vital importance that the reliable compilation and timely reporting of government finance statistics are ensured. appropriate budgetary targets and compliance with fiscal commitments and reporting requirements will help to build confidence, support the economic upswing and prepare for the impact of population ageing. as regards the european fiscal framework, the governing council remains convinced that improvements in the implementation of the stability and growth pact are possible and would be beneficial. in this regard, the european commission ’ s proposals for improving the implementation of the preventive arm of the pact are useful. at the same time, the governing council warns against changes to the pact and, in particular, the excessive deficit procedure. it considers the credibility of the 3 % deficit limit essential to anchoring expectations of fiscal discipline. moreover, strict surveillance and effective peer pressure on national budget policies are indispensable to preserving sound fiscal policies. finally, i would also like to take this opportunity to reiterate the need for progress on structural reform. fiscal consolidation plans should be part of a structural reform agenda that favours growth, competitiveness and employment. as regards labour and product markets, the mid - term review of the lisbon agenda - now being prepared for the european council meeting in march 2005 - is a major opportunity to increase momentum in these fields

influence inflation dynamics. the increase in prices of energy and energy - sensitive goods and services contributed around 6 percentage points to euro area inflation at its peak in october 2022. furthermore, climate and nature - related risks create financial risks on the balance sheets of financial institutions. these risks can lead to losses or higher funding costs, reducing the flow of credit to the real economy. this can also affect the transmission of central bank policies to the financing conditions of households and firms. in the euro area, banks are exposed to climate - related risks, with high - emitting sectors over - represented in their corporate loan portfolios, accounting for over 70 % of corporate lending. [ 9 ] these risks also extend to our own holdings of corporate bonds. finally, these risks are also unique in that, unlike for instance geopolitical risks, central banks can contribute towards mitigating them. there is broad political consensus on the need to tackle the causes of climate risks. and while governments are in the lead and have the most powerful tools, we can also play our part, within our mandate, in preparing the economy for the future. so, what is the ecb doing? what the ecb is doing first of all, we are maintaining price stability, which is essential for the transition to a low - carbon and circular economy. the green transition requires substantial investment, and a stable inflation outlook gives firms greater visibility on investment costs, which is particularly important for green projects given their long - term planning horizons. moreover, price stability supports the relative price signals from policies such as carbon pricing, improving their efficiency. but beyond creating the right conditions for investment, we are committed to playing our part to address climate change, within our mandate. our approach can be summarised with three key words : analysing, advising and acting. analysing the basis of contributing to addressing climate change – within the scope of our tasks – is our analysis of how it affects the economy, the financial system and our own activities. in recent years, we have made significant strides in understanding climate risks. our findings show that delaying the green transition may result in increased long - term costs. [ 10 ] furthermore, climate change may pose systemic risks to financial stability [ 11 ], and the degradation of nature may pose additional risks in this area. but there is still more ground to cover. that is why we have announced our climate and nature plan 20242025 [ 13 ], which builds on existing work and explores new frontiers