monitor very closely the upward risks to price stability related to the risk of possible second - round effects of past oil price increases on consumer prices via wages. the maintenance of robust non - inflationary growth is a challenge to be met by many policy areas. fiscal policy will have to continue the consolidation process, and governments should abide by the commitments of the stability and growth pact and by those made in the context of their stability programmes, pursuing further improvements on the expenditure and revenue sides of the budget. progress along the way to the medium - term objective of budgetary positions " close to balance or in surplus " cannot be delayed. in fact, economic growth lower than previously expected should not be a reason to miss budgetary targets in countries with remaining fiscal imbalances. finally, the objective of expanding the growth potential of the euro area economy must remain a priority in the agenda of the euro area. while progress is being made in a number of areas, more ambitious market - oriented structural reforms remain a challenge. the still high level of unemployment calls for ongoing policy efforts to remove structural rigidities from the product and labour markets, and to diminish adverse incentives provided by tax, benefit and pension systems. moreover, it is crucial to increase investment incentives through structural policy measures such as deregulation, privatisation, and tax reforms. 2. issues relating to the introduction of the euro banknotes and coins i should now like to turn to the preparations for the introduction of the euro banknotes and coins. as far as the eurosystem is concerned, preparations are well on track. at the end of april 2001, more than half of the euro banknotes to be put into circulation from 1 january 2002 onwards, or needed as logistical stocks, had already been produced. if measured only against the initial launch requirements, the produced banknotes amount to as much as 70 % of those needs. at the same time, the logistical arrangements within the eurosystem related to the circulation of the euro banknotes and coins are being implemented in line with the plans that have been agreed over the last few years after careful consultation with all parties involved. this includes the storage of substantial amounts of banknotes and coins, for which adequate provisions have been established, even though it posed unprecedented logistical and organisational challenges, not least with regard to security and spatial requirements. the preparations for the transportation and frontloading of banknotes to banks also form part of these activities. as concerns the latter, on which i have already reported

confirmed by more specific evidence, and there are now indications that, over recent months, the inclusion of non - euro area residents'holdings of negotiable instruments has increasingly led to an upward distortion of m3 growth. the magnitudes involved are significant and higher than previously expected. as regards holdings of money market fund units / shares by non - euro area residents, on which reliable statistical data are now available, the distortion has become more sizeable over recent months and currently amounts to around half a percentage point of the annual rate of growth of m3. as for non - euro area residents'holdings of other marketable paper included in m3, precise statistical information is currently being developed. preliminary evidence indicates that the size of this upward distortion to m3 growth might have been similar in early 2001 to that related to non - resident holdings of money market funds units / shares. consequently, the upward distortion to m3 growth figures in early 2001 may be in the order of one percentage point. a detailed analysis of these distortions to m3 growth was published in the monthly bulletin of may. the ecb intends to publish a revised m3 series towards the end of this year. in the meantime, the ecb will continue to inform the public about these developments and explain how these distortions are taken into account in the regular assessment of monetary developments. taking into account all these factors, it was clear that the slowdown in m3 over the past few months was more pronounced than expected, with estimates of corrected m3 growth at or even below the reference value of 4½ % for some months now. overall, the governing council therefore concluded on 10 may that current analysis under the first pillar no longer signalled risks to price stability over the medium term. in the analysis from the second pillar of the monetary policy strategy, several developments pointed to moderating inflationary pressures in the medium term. the global outlook for growth in 2001 has deteriorated over the last few months, and has continued to be characterised by substantial uncertainty, especially with respect to the outlook for the us and japanese economies. owing to a less favourable external environment, a moderation in real gdp growth in the euro area from the high levels reached in 2000 is expected in 2001, and this should dampen upward pressure on consumer prices. data on economic activity recently released in the euro area, like industrial production in march, and business confidence indicators confirm this picture of a moderation in growth. this notwithstanding, currently available forecasts, both by international organisations and private institutions, expect that economic