in the third quarter of 2010. 1 this inflow of new foreclosures exceeded the outflow due to completed foreclosures and properties sold through short sales and deeds in lieu. as a result, the foreclosure pipeline increased to 1. 9 million mortgages – double the level from a year earlier ( chart 6 ). efforts to modify mortgages have not managed to prevent the foreclosure pipeline from increasing. as a consequence, distressed sales are expected to grow even further over the coming year. the combination of declining house prices and increasing delays in the foreclosure process will put upward pressure on default rates as well as losses on defaulted mortgages. corelogic estimates that in the third quarter of 2010 there were 10. 8 million borrowers in negative equity where the balance on the mortgage exceeds the current value of the property. they estimated that there were an additional 2. 4 million borrowers estimated to be in “ near negative equity ” where the borrower has less than 5 percent equity remaining. declining house prices will push these near negative equity borrowers into negative equity. this increases the risk that these borrowers will default on their mortgages either out of necessity – say as the result of a job loss – or out of choice, which is called strategic default as borrowers determine that there is little economic advantage to keep paying the mortgage. longer delays in the foreclosure process further increase the incentive for a borrower to strategically default by extending the period of time that they can live “ rent free ” in the house. in addition, declining house prices increase the expected losses on those mortgages that do default. problems in housing markets can impact economic growth. housing directly effects growth through incentives for builders to build new houses. housing starts will likely remain depressed as long as house prices are declining. falling house prices can also negatively impact consumption growth to the extent that homeowners increase their savings in an effort to offset declines in their housing wealth. the degree to which housing markets deteriorate over 2011 and the impact that this will have on overall growth is hard to predict with any accuracy. the most likely outcome is that the economy will continue to improve as the year progresses despite the ongoing drag from housing. however, the protracted process of resolving the overhang of negative equity resulting from the overvaluation of housing during the boom will remain a headwind restraining economic growth for several years to come. let me conclude with an observation regarding the housing outlook for

in germany. how worried are you that the situation in greece could escalate again in 2017? the overarching aim must be for greece to implement the esm programme so as to regain access to the financial markets. in order for this to happen by mid - 2018, the country needs decisive reforms as well as measures to ensure the sustainability of its debt. both the government in athens and its euro partners must deliver what they have committed themselves to. short - term debt measures as decided earlier this month by the eurogroup are welcome but let me be clear : they are not enough to eliminate concerns over debt sustainability in greece, unless strong assumptions are made on greece ’ s fiscal surpluses beyond 2018. medium - term debt measures will also be needed. but we are currently in the midst of a programme review and the ball is clearly in the greek camp. volatility on the financial markets is low, share prices are rising and rising, especially in the united states. do you see a decoupling from fundamentals? i don ’ t want to comment on us markets. high share prices are predicated on high corporate earnings expectations. but one thing is sure : financial markets ’ reactions to the various shocks seen this year were very subdued. this makes it all the more important for authorities to be vigilant as far as risks to financial stability are concerned. we have seen recently significant corrections in bond yields. this is not all bad : higher yields and wider spreads recreate scope for a proper assessment of risks. in this respect, and up to a point, they can foster market discipline. are we at risk of a bond crash like in 1994? there are no signs pointing in that direction. but all actors must prepare themselves for the time when extremely favourable interest rate conditions gradually come to an end. in particular, governments should be aware that their budgets are subject to interest rate risks. they have not used the unexpected gift of low interest rates as they should have – that is, in most countries, to reduce debt and return more quickly to a balanced budget. 4 / 6 bis central bankers'speeches what about private agents? have they become too accustomed to loose monetary policy? i hope they have not. it is clearly their duty to prepare for risks. we conduct monetary policy with a mandate of price stability. we don ’ t issue a blanket guarantee for the financial system. won ’ t this risk awareness be undermined if the ecb promises to be active in the markets “ for