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By Canceling Debt, Croatia Grants 'Fresh Start' to 60,000 Citizens

Unprecedented move comes as other European Union governments continue to burden poorest citizens with austerity

Overall, the debt of all Croats amounts to $4.11 billion. (Photo: SantiMB.Photo/cc/flickr)

In an unprecedented move many hope will jump-start an economy plagued by years of recession, Croatia on Monday wiped out the personal debt for roughly 60,000 of its poorest citizens.

The government program, named "fresh start," aims to help some of the 317,000 of Croatians whose bank accounts have been blocked because of unpaid bills.

Under the terms of the plan, an individual's debt must be lower than 35,000 kuna ($5,100), and his or her monthly income should not be higher than 1,250 kuna ($138). Those applying for debt cancellation are not allowed to own any property or have any savings.

Deputy Prime Minister Milanka Opacic told a cabinet meeting last month that they expect roughly 60,000 citizens will be applicable, saying, "Thus they will be given a chance for a new start without a burden of debt."

According to the Washington Post, the Croatian government has convinced multiple cities, public and private companies, the country's major telecommunications providers, as well as nine banks to support the plan and absorb the debt. The government will not refund the companies for their losses.

The Post continues:

Overall, the debt of all Croats amounts to $4.11 billion—and the debt that is about to be wiped out accounts for less than 1 percent of that. However, for those who are eligible the agreement will make a significant difference by enabling them to gain access to their bank accounts. By reducing debt by less than 1 percent, Croatia frees nearly 20 percent of the country's debtors from their obligations.

For a country that has suffered a recession six years in a row, Prime Minister Zoran Milanovic said, "This is the first time that any (Croatian) government tries to solve this difficult problem and we are proud of it."

The rare move comes as other European Union governments continue to burden their poorest residents with ongoing austerity.

Economist Dean Baker, co-director of the Center for Economic and Policy Research, agreed the move was unprecedented, telling The Post: "I can't think of anything comparable." However, Baker voiced concern that the move might backfire if lenders begin to charge higher interest rates to low-income borrowers.

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