Supporting social mobility – a lesson from Croatia

Our friends in Croatia undertook an interesting experiment, codenamed, “Fresh Start,” a couple of months ago in February 2015. They decided to write off the debt of 60,000 of Croatia’s poorest citizens. This debt write-off was a one-time move by a leftist government (incidentally a government that faces a key election and one can therefore take a cynical view that this is merely an election ploy but I’ve chosen to focus on the wider social/economic benefits this initiative can provide).

“Fresh Start” was essentially a programme that was designed to help the poorest and most vulnerable citizens cope with an economic crisis for which they had little or no responsibility.

The initiative in brief:

Croats whose debts do not exceed 35,000 Croat Kuna (or 4,800 Euros) and whose bank accounts have been frozen for over a year can apply under the scheme to have their total debts written off.

Under the plan, only those with a monthly income in the last three months that did not exceed 2,500 kuna (340 Euros) are eligible.

The government has reached an agreement with major banks, telecommunications companies and city councils to write off the debts of the citizens who have applied to the schemes and provide them access to basic services. Individuals who have had their accounts blocked for more than twelve months will qualify for the write-off. This also mean that individuals whose bank accounts have been blocked will be able to gain access to their accounts which will make a significant difference to the way they are able to undertake daily transactions and maintain a certain sense of normalcy.

Croat citizens who have savings or own property will also not be eligible for the write-off.

How will this initiative help?

The Social Welfare Minister for Croatia, Milanka Opačić, feels that the signing of the agreement will mean a new start for sixty thousand of Croatia’s citizens.

This is an unprecedented move which the government hopes will jump-start the economy which has been plagued by recession for over half a decade now. The economic prognosis continues to be bleak but it is hoped that this initiative will allow for a significant number of Croats to contribute back to the economy.

The overall debt of all Croats amounts fo 3.88 billion Euros and it is estimated that the total amount of debt to be forgiven under this “Fresh Start” campaign will be less than 1% of the total debt. However, this will help free nearly 20% of the country’s debtors from their obligations.

This may have the propensity to generate a greater (but limited) amounts of economic output and enterprise from the individuals who otherwise previously were restricted from the ability to contribute.

Are there any risks?

Unemployment in Croatia currently is at 15% (or 330,000 unemployed). It is important that the individuals who are eligible for the “Fresh Start” campaign do not fall back into the debt trap again.

The tight parameters and stringent conditions of the deal also means that it is unlikely to have a significant stimulus effect.

There is also another real risk that businesses may push up costs for other borrowers and taxpayers in the short to medium term and make it relatively more expensive to get short-term credit or factor similar initiatives into the costing of other services in future.

There is also a slight risk that this may encourage reckless behaviour in the future by individuals who will expect the government to bail them out in future and set a dangerous precedent.


Though there are a number of risks here, and anything worthwhile in life always carries a measure of risk, on the whole this is an initiative that gives hope to the most downtrodden of society and gives them the opportunity to reinvent themselves and build on the boost they have been given to contribute more to society. The initiative impacts roughly 60,000 individuals, and the wider multiplier effect means, 60,000 happier families who can all look forward to a future without being beset by crushing debt and look forward to a life with greater positives and seek prosperity.

The initiative is now being considered by a number of other Central European states and one that should certainly be considered by a number of countries beyond Europe where the income disparity is getting worse and the poor keep staring down an abyss where it seems like there is little hope for them to extricate themselves from a debt-laden life.



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