Prime Minister Zoran Milanovic has touted the policy as a unique scheme to help the poor as strapped European nations look for imaginative ways to clean up their finances but prevent further impoverishment.
ZAGREB, Croatia — While Greece and Germany tussle over what debt forgiveness might mean, Croatia, the European Union’s newest member, is adopting its own approach, offering what it calls a “new beginning” to some 60,000 of its poorest citizens.
Starting Monday, the government of Croatia, which joined the EU in July 2013, offered a debt write-off to Croats who have blocked bank accounts, owe less than the equivalent of about $5,000 and currently receive some sort of welfare benefits. They also should have no property or savings outside of a primary residence.
By Wednesday, about 20,000 citizens had applied for the assistance, announced last month by Prime Minister Zoran Milanovic, who touted it as a unique scheme to help the poor as strapped European nations look for imaginative ways to clean up their finances but prevent further impoverishment.
“This is the first time that someone decided to solve this problem in this way,” Milanovic told Parliament. “Not by punishment or legal force, but through an agreement.”
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Croatia, a country of 4.2 million, has spent the past five years trying to climb out of a prolonged recession. Membership in the EU did not provide the expected economic boost, subjecting the country instead to the bloc’s fiscal constraints. Unemployment hovers near 20 percent, and the nation’s credit rating has fallen below investment grade. The government predicts meager growth of less than 1 percent this year.
Reception of the proffered debt relief has been mixed. While the country’s Financial Agency said it expected about 60,000 Croats could benefit from the scheme, economists and debt-stricken citizens who do not qualify have been critical.
Vlado Simunovic, a 50-year-old father of five, thought he would be bound to get help. Instead, the Financial Agency turned him down, saying he owed $59,000, 10 times the suggested limit.
“I didn’t even know I owed that much money,” Simunovic said by telephone from his home in the small town of Vinicno, 40 miles northeast of Zagreb. “I thought they’d be able to help me at least with something.”
He had already joined The Association of the Blocked, an advocacy group that aims to help the 322,000 people with blocked accounts and is pressing for a change in debt laws.
Currently, creditors can block individuals and business owners from accessing bank accounts and earnings, taking funds until debts are repaid.
Miriam Kervatin, president of the association, said this leaves welfare recipients and the unemployed in a spiral of debt that is nearly impossible to escape.
Zdeslav Santic, chief economist for Croatia’s Splitska bank, had other reasons to be skeptical of the new beginning.
The actual economic benefit will be difficult to quantify in both the short and long term, he said. “After six years of successive GDP decline, this is one measure that can help those poorest citizens,” he said, adding quickly, “We must remember that this is an election year.”
Milanovic, a Social Democrat, announced the scheme just days after his party’s candidate lost an extremely tight presidential election to the conservative Croatian Democratic Union, whose nominee, Kolinda Grabar-Kitarovic, is a former ambassador to the United States.
It was the third electoral setback in a row for the ruling coalition, after the Croatian Democratic Union took most seats in last May’s European parliamentary elections and also triumphed in local elections last year.
A new national election must take place before the end of this year. The most recent opinion poll by Ipsos Puls in December put the Croatian Democratic Union at 26 percent, compared to 18 percent for the Social Democrats.
Santic said that the new scheme offered a short-term boost for the poorest of debtors. “But without the creation of new jobs,” he said, “their situation will not improve.”
Milanovic has emphasized that the new beginning is a one-off deal that will not be repeated. “It took a lot of patience, some amount of time and that is — if it must be said — proof that we are a humane government,” he said.
Simunovic, a former welder who has not worked since a series of health-related setbacks in 2007, is not so sure about government compassion. After creditors take a percentage, he said, he has just 1,170 kunas ($172) left from his monthly disability pension.
”Every time we get the electricity bill, we have to reconsider whether we buy bread,” he said.