too, get to share in the prosperity. competition guarantees the ability of the market economy to perform. it creates prosperity, but it also needs to be protected. and that means having smart competition laws and strong antitrust regulators in place. supporting this is an independent monetary policy to safeguard the necessary monetary stability and a reliable economic policy to deliver long - term investment certainty. other aspects include the alignment of actions and liability, protection of private ownership, freedom of contract and open markets. these constitutive principles are the deﬁning characteristics of our free economic system. altogether, these form a playing ﬁeld that a market economy cannot create for itself. there need to be rules and institutions that create a stable regulatory framework for the market economy. it is to the credit of the founders of the social market economy in germany that they recognised this long before institutional economics came to widespread popularity. walter eucken encapsulated the role of the state as follows : “ state planning of forms – yes ; state planning and control of the economic process – no. ( number ) ” the second pillar supporting the social market economy is an awareness of the social implications of market processes. everyone in society should share in the prosperity created. no - one should be left behind. that ’ s why there is a social protection net that cushions hardship and protects people experiencing ﬁnancial [UNK]. however, distribution policy alone does not go far enough. inclusion also means giving as many people as possible the chance to embrace economic opportunities for themselves. one key to this is education. or to use the words of the german economic institute : “ ( … ) access to work and education [ is ] vitally important for being able to share in the rewards of growth in the long run. ” [ 5 ] this is why an [UNK] and fair education system is just as crucial for delivering on the social market economy ’ s promise to deliver inclusive prosperity as a social security net and a functioning competitive system. ladies and gentlemen, it ’ s this combination of market economy [UNK] and social fairness – of freedom, prosperity and security – that has characterised the social market economy to the present day. alfred muller - armack neatly encapsulated the concept, saying that the idea behind the social market economy is to merge the principle of freedom in the markets with that of a social balance. the interplay between market forces, their social consequences and interventions to correct them is often a complex matter. so complex, in fact, that seemingly self - evident measures

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