libor risk across every jurisdiction where you have exposure. let ’ s stand on protocol for derivatives, which represent by far the largest u. s. dollar libor exposures in the market, there is some good news. standard derivatives documentation does not have workable fallbacks to accommodate the end of libor, and there is enormous uncertainty about what will happen in this market when libor ceases. that ’ s not the good news. the good news is that there is a simple action every market participant can take to end that uncertainty right now. the international swaps and derivatives association ( isda ) will be opening a protocol soon that resolves this uncertainty for firms that sign up to it. the arrc has recommended that all firms adhere to the protocol as a best practice. this is an area where the exposures and the risks to firms and the system as a whole are very large, but there will soon be a clear option for managing those risks. and because isda has contracted with bloomberg to calculate and publish the protocol ’ s fallback rates beginning now, if you adhere to the protocol you can have a good understanding of the effect of libor ’ s end on your derivatives well before it actually goes away. 12 even better, the arrc has announced that its recommended rate for libor products that transition to sofr will be the same as the isda protocol ’ s fallback rate. 13 so you can have that same certainty for cash products as well. also on the derivatives front, clearinghouses lch and cme will change over discounting and price alignment interest on listed derivatives to sofr in two weeks ’ time, and will incorporate the isda transition terms into their standard contracts. that should help increase activity in sofr derivatives, which, as we ’ ll see next, should help lay further groundwork for new sofr - based alternatives. coming to terms with sofr apart from the overnight and average sofr rates that are being used right now, there are two other types of rates that some market participants seem to be awaiting. one is the forward - looking term sofr rate that the arrc is working on. earlier this month the arrc released a request for https : / / www. newyorkfed. org / newsevents / speeches / 2020 / hel200929 3 / 6 30 / 09 / 2020 the libor countdown has not stopped - federal reserve bank of new york proposals for the design and production of term

deadline for correcting the excessive deficit. normally, the timeframe will continue to be 2 years after the excessive deficit occurred. however, the revised stability and growth pact now allows for the possibility to extend this timeframe to 3 years. in my view, this is a positive change since the earlier system in practice meant that countries only had a few months to correct an excessive deficit, and this did not increase the respect for the stability and growth pact. however, in addition, a possibility to revise the initial deadline has been introduced which creates a risk for an excessively prolonged edp. to summarise, some of the changes in the stability and growth pact thus go in the right direction and might enhance the discipline, while other changes introduce a flexibility that could be abused. as always, the proof of the pudding is in the eating. so far, budget plans have not moved in the stricter direction despite the fact that growth prospects have improved. the yearly average deficit for the euro area will stay at about 2. 4 % of gdp for the next couple of years according to present plans. the structural deficit is expected to improve only marginally between 2005 and 2006 – from 2. 2 to 2. 1 per cent – despite a strong economy. it is important to stock up now ready for future times with lower growth. the recovery and consolidation of the eu ’ s largest economy, germany, is of central importance in this context. why have we not seen the problems earlier? the question is why we didn ’ t see the problems in the stability and growth pact from the beginning? perhaps because we were fortunate to have something that could work as a temporary replacement for rules : clear objectives, strong leadership and the market as a quickly reacting judge. most countries wanted to meet the convergence criteria and thereby join the euro area. germany led the way, both in terms of its economic size and its example of fiscal discipline. now the objective of joining the euro has been achieved for many countries, and, in addition, germany has lost its leading role and the markets react less to fiscal laxity. instead of national leadership towards clear objectives we have seen the opposite – the political exploitation of the gap between the national and european level. the requirements of the pact are blamed on heartless “ accountants in brussels ”, and when a majority within the countries puts narrow national political interests first the agreed rules become moot – “ peer pressure ” becomes ” peer protection ”. incorrect facts have been more or less deliberately sent