The Stale Catch in Croatia's “Fresh Start” Debt Erasure Program

Image: Public domain.

Image: Public domain.

International mainstream media, including CNB, Mashable, derStandard, The Independent and others, reported at length in early February 2015 on the Croatian government's new program to erase the debt of its poorest citizens, with headlines like “This country has just canceled poor people's debt” and “Croatia wipes out debts for 60,000 people”.

The headlines aren't false, but many Croatian citizens fail to see the benefits and economic improvements outlined in newspapers worldwide.

Truth be told, Croatia's government has come up with what seems to be a brilliant idea to help poor citizens. They named the project “Fresh Start”, planned it meticulously, and launched the project in the first weeks of 2015. To envisage how this government plays the straight man with its citizens, it's important to point out that the last time the value of the Swiss Franc went up, Croatia's leaders decided that freezing the national currency would provide the necessary amortization and prevent fiscal oscillations to keep the market stable. In other words, they intervened in the country’s foreign exchange market to preserve the appearance of a stable economy (a common practice in many southeastern European countries).

The idea for “Fresh Start” was first presented to the public in early March 2014, by former Minister of Finance Slavko Linić, who has since been booted from the Social Democratic Party (SDP).  

It is also important to keep in mind that 2015 is a parliamentary election year in Croatia, and that SDP, the current majority in government, have just suffered a great loss in the January 2015 presidential elections, which was won by a HDZ center-right party candidate.

Meanwhile, in the midst of planning austerity measures, Prime Minister Milanović hired Alexander Braun, a specialist in political and crisis consulting and senior vice president of US strategy consulting firm Penn Schoen Berland, for the rumored fee of some 300,000 euro. 

To complete the picture of this situation, let's talk numbers: there are 4,284,889 people in Croatia (census 2011), 329,330 (15.7%) of whom are unemployed, according to the Croatian Employment Institute. 56,632 Croatians, most of them under 30, are involved in some kind of state-sponsored employment, and paid an average of 300 euro net per month. The Croatian public debt is now more than 53 billion euro, while the average wage is 703.97 euro, and the minimum wage is 398.31 euro. According to Novi list, an average four-person family in Croatia makes about 7,830 kn (1,014.40 euro) per month. In order to satisfy their needs and expenses, however, the same family needs some 11,130 kn (1,442.00 euro) per month. The numbers make it fairly obvious that many ordinary working people in Croatia aren't able to make ends meet. These people are not considered needy or among the poorest in the country. 

“Fresh Start will erase up to 60,000 Croatian kuna per individual (about 8,000 euro or US$8,800), literally allowing their households to retrieve full stability overnight,” claims the Like Croatia website, adding that “not only the government is involved in this project, so are other legal bodies including banks and communications companies.” 

All this is true. But what will come next? The 60,000 people mentioned time and again are in debt for a reason. Would it not be much wiser to reopen the factories destroyed in the post-war privatization process? Or create more jobs, something that voters have called for ahead of, during, and after several past elections? History seems determined to repeat itself in Croatia, where expenses keep growing and citizens simply don't earn enough to cover them, and lack knowledge about finances and employment opportunities.

As Vanja Tarczay from Zagreb tweeted, expressing a popular opinion on the matter:

@dpasaric @Mmatejci I don't like that communication companies are writing off [customers’] debts, especially to people who have debts at more than one company. They are the hustlers, not the poor.

In response to this author's question regarding which government institutions, banks, and companies would be wiping citizens’ debts, and whether interest would be wiped as well, the official Twitter account of the Government of Croatia replied:

@Mmatejci If e.g. someone owes a bank 10,000 kuna in principal, and also owes a few thousand kuna in interest, all of that will be wiped.


@dpasaric @Mmatejci You can find the list [of institutions and companies] here The list is constatly being updated as creditors can [still] sign the agreement until May 30

To be eligible for debt relief, citizens must be holders of bank accounts that have been frozen for longer than one year as of October 2014, and be owing up to 35,000 kn (4,534.91 euro) cumulatively, as documented by FINA, the national Financial Agency.

Croatian journalist Helena Puljiz posted a comment on the subject on the T-portal news and opinion site, under the subject heading “Everyone paying their bills in Croatia is a fool”:

Nova eksplozija tečaja švicarskog franka izazvala je veću podjelu među građanima nego verbalno napucavanje prozivkama tko je veća Hrvatica/Hrvat. Koliko god bila teška situacija za 60.000 građana koji su se zadužili u švicarskoj valuti i njihove obitelji i koliko god je loše zakonodavstvo krivo za hrvatsku zavrzlamu s francima, ostaje činjenica da su oni koji su se zaduživali u toj valuti to činili na vlastitu odgovornost. No malo je onih među njima koji su spremni priznati da su si, uz banke i vlast, i sami krivi za situaciju u kojoj su se našli. Nitko ih, naime, nije tjerao da se zadužuju u švicarskim francima, a rado se zaboravlja i kako među njima ima i ministara, spekulanata i pravih bogataša

New explosions of the Swiss franc have caused more division among the citizens than verbal brawling by calling out who is a greater Croat. No matter how difficult it is for the 60,000 citizens who are indebted in Swiss currency and their families, and as far as legalislation is guilty for Croatian fooling around with francs, the fact that people who took out loans in that currency did it on their own responsibility. But few are ready to admit that, along with banks and the administration, it they are also to blame for the situation they are in. Nobody, in reality, forced them to go into debt and it's gladly forgotten that there are ministers, speculators, and very wealthy people among them.

Croatian PM Zoran Milanović said:

Novi početak je isključivo motiviran željom da se ljudima pomogne, ali lijepo je vidjeti da je međunarodna javnost to prepoznala.

Fresh Start is exclusively motivated by will to help the people, but it's really nice to see that international public has recognized it”.

The Croatian public has also “recognized it”, but can perhaps be forgiven for giving it a less positive reception than the international media. Fresh Start is essentially a good project, but there are fears that the whole project was created just to score political points.

There are many in Croatia who have lost their jobs in recent years through no fault of their own. And people are now paying the price by being heavily in debt and having their accounts blocked. Fresh Start may offer some temporary relief, but they will have to continue living after their debts are wiped. That's something the government should start thinking about.

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