Why Croatia is writing off the debt of its poorest citizens

The government in Croatia is to cancel the debts of its poorest citizens in an attempt to boost the economy.

The unprecedented move will give up to 600,000 citizens the "chance for a new start without a burden of debt", the country's deputy prime minister, Milanka Opacic, told a cabinet meeting.

The programme was launched following a government deal with the country's largest banks, telecommunications operators and public utility companies, who will not be refunded for their losses.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

"I can't think of anything comparable," Dean Baker, co-director of the Washington-based Center for Economic and Policy Research, told the Washington Post.

In order to be eligible for the cancellation, citizens will have to have debt that is lower than 35,000 kuna (£3,400) and a monthly income of less than 1,250 kuna (£122) or be on welfare. Applicants are also not allowed to own any property or have savings.

"This is the first time that any [Croatian] government [has] tried to solve this difficult problem and we are proud of it," said Croatian prime minister Zoran Milanovic.

Croatia has suffered a recession for six years in a row and its unemployment rate has doubled to 19.6 per cent since it joined the EU in 2013. The programme is expected to cost up to 2.1 billion kuna (£212m), but the social-democratic government believes the significant short-term investment will have long-term benefits as the country begins spending again.

However, the move has been dismissed by some as sheer "populism" ahead of parliamentary elections later this year, Bloomberg reports. "Obviously, the recent victory of an opposition politician in the presidential elections last month has concentrated the mind of PM Milanovic on the need to come up with some vote winning policies, " said Timothy Ash chief economist of London-based Standard Bank.

Others are unsure if the scheme will even succeed. "I am not sure that this is the best way to help low-income people. If lenders think this can happen again they will charge very high interest rates to low-income borrowers," Baker said.