For most of the poor, debt is debilitating. When the cost of living consistently outpaces what one makes for a living, attempting to pay off debts is as demoralizing as it is financially punishing. During harsh economic times, the U.S. has chosen a path of abandonment or prison for those trapped by insurmountable debt.
Amid its own crisis, Croatia is exploring another option: canceling debt for tens of thousands of its poorest citizens.
Under Croatia's new "Fresh Start" program, about 60,000 citizens are eligible to have their debts canceled and their bank accounts unfrozen.
The details: In order to have debt written off, a Croatian must make less than 1,250 kuna ($138) a month, must not own any property or savings and must have a debt lower than 35,000 kuna ($5,100), according to the Washington Post.
The initiative is by no means a comprehensive measure: An estimated 317,000 Croatians have their bank accounts blocked due to their indebtedness; creditors have seized their accounts and can take money until debts are repaid. People who don't fall under the low salary threshold will not reap Fresh Start benefits, nor will people with high levels of debt.
The New York Times spoke with a 50-year-old man with five children who said that he was turned away from an attempt to claim eligibility when he was informed he owed over 10 times the limit to creditors.
"I didn't even know I owed that much money," he told the newspaper.
But the debt write-off is still significant. Croatia is a small country, and the measure frees nearly 20% of its debtors, according to the Post. Croatia has been in dire economic straits for quite some time, plagued by six consecutive years of recession and crippling unemployment. The debt cancellation is a targeted measure intended to free up people to spend their money on the economy and stimulate the nation's sluggish growth.
Some observers suspect that the write-off may not make a huge splash on the economy, and that the government is in fact banking on the spectacle of compassion in the run-up to a competitive election at the end of the year. Even so, the idea that the government views relief rather than punishment a political boon is a remarkable sign on a continent wracked by the ethics of austerity.
Crises reveal values: In the U.S., the simplistic moral narrative underpinning debt has lead to some disastrous policy decisions. Because debtors are reflexively assumed to be irresponsible, public policy is overwhelmingly designed to be punitive to them rather than assistive; little thought is given to whether the arrangements that brought about their state of indebtedness was fair or reasonable.
Consider how the U.S. responded to the subprime mortgage crisis: The big banks that destroyed the economy were bailed out and relieved by taxpayers, but over 10 million people were forced out of their homes, even after it was made clear that their inability to pay their mortgages were largely due to predatory lending practices. Using logic that echoes the Croatia debt cancellation, a number of economists argued at the time that giving more financial support to struggling homeowners made both moral and economic sense, but their calls went unheeded. Millions of disadvantaged Americans experienced displacement and untold hardship instead of relief.
Student debt: The home foreclosure crisis has ended, but other crises of debt still remain. Student loan debt, now at over $1.2 trillion, is an albatross around the neck of millions of ambitious Americans. Washington is uninterested in basic reforms that would ease the weight. If nothing is done to alleviate exploitative loan arrangements, many will be caught paying loans for the rest of their lives. They'll also be unable to make the kinds of investments in things like houses and cars that the consumer-driven American economy relies on for its pace of growth.
A small movement for debt relief calling Rolling Jubilee currently exists in the U.S. It made headlines last fall for buying and eliminating about $4 million of student debt and declared it was bent on doing more. Many have derided their effort as naive, and it's only a drop in the bucket for total student debt. On the other hand, it's difficult to argue on behalf of preserving the status quo.