data and analysis will be required to develop a more complete view of the impact of the financial market volatility on bank balance sheets, financing conditions and money and credit growth. to sum up, a cross - check of the information identified under the economic analysis with the outcome of the monetary analysis has fully confirmed the existence of upside risks to price stability over the medium term, with money and credit growth vigorous in the euro area, and against the background of sound economic fundamentals in the euro area. at the same time, given the continued uncertainty, additional information is needed before further conclusions for monetary policy can be drawn. consequently, the governing council will monitor very closely all developments. our monetary policy stands ready to counter upside risks to price stability, as required by our mandate. by acting in a firm and timely manner on the basis of our assessment, we will ensure that risks to price stability over the medium term do not materialise and that medium and long - term inflation expectations remain firmly anchored in line with price stability, which is all the more important in the current context. as regards the financial markets, we will continue to pay great attention to developments over the period to come. turning to fiscal policy, the governing council welcomes the ecofin council ’ s agreement to strengthen the preventive arm of the stability and growth pact. the governing council also welcomes the recent confirmation by the ecofin council of a reinforcement of its commitment to the full implementation of the pact. in particular, the provisions of the preventive arm, including the call for a structural adjustment of at least 0. 5 % of gdp per annum, need to be adhered to by all countries with fiscal imbalances. in this regard, 2008 budget plans in a number of countries point to a pro - cyclical fiscal stance and an unwarranted relaxation of consolidation efforts. this gives rise to concern as consolidation shortfalls undermine in particular the eurogroup agreement to achieve sound budgetary positions by 2010 at the latest. with regard to structural reforms, the governing council stresses that a key effect of welldesigned structural reforms is a sustainable improvement in the employment and income situation of workers and households. reforms which increase the incentives for firms and individuals to invest in human capital tend to enhance overall labour demand and productivity. reducing non - wage labour costs would also enhance employment and the net income levels of workers. moreover, labour market regulations should not discourage firms from offering jobs, or workers from accepting them. it is encouraging to see that

account the existence of capacity constraints, the favourable momentum of real gdp growth observed over the past few quarters, and the positive signs from labour markets, stronger than currently expected wage developments may occur. furthermore, an increase in pricing power in market segments with low competition could materialise. such developments would pose upward risks to price stability. it is therefore crucial that all parties concerned meet their responsibilities and that second - round effects be avoided. in addition, the explicit or de facto indexation of nominal wages to prices should be reduced and ultimately eliminated. the monetary analysis confirms the prevailing upside risks to price stability at medium to longer - term horizons. the strength of both money and credit growth in recent months – with the annual growth rates of m3 and mfi loans to the private sector both at more than 11 % in september – may have been influenced by a number of temporary or special factors, such as the flattening of the yield curve and the recent financial market volatility. however, even taking into account these special factors, the underlying rate of money and credit expansion remains strong. monetary developments therefore continue to require very careful monitoring so as to detect underlying trends on the one hand and to better understand shorter - term dynamics on the other. this monitoring will provide a more complete picture of the response of the private sector to the increased volatility in financial markets. a broad assessment of underlying trends in money and credit growth is particularly important given recent financial market developments, since financial volatility may influence the shortterm behaviour of money - holders and thereby affect monetary developments. monetary and credit data can therefore offer an important insight into how financial institutions, households and firms have responded to the financial market volatility. indeed, previous episodes of heightened financial market uncertainty have been associated with large portfolio shifts into safe and liquid monetary assets. for the time being, however, there is little evidence that such shifts have influenced the dynamics of broad money and credit aggregates since the onset of financial market volatility in early august, although specific balance sheet items, such as holdings of money market fund shares / units, may have been strongly affected. the rate of growth of bank loans to households and non - financial corporations has remained robust in recent months, tentatively suggesting that there is no impairment in credit supply. however, it cannot be excluded that the strong loan flows partly reflect the re - intermediation of some financing onto bank balance sheets given illiquidity in some segments of the assetbacked securities markets. further