Thursday, February 19, 2015

Payback time

The Eurozone crisis has focused on sovereign debt, the debt owed by states. But there is another debt crisis, private debt. Much of the expansion of consumption before the banking crisis was down to credit rather than earnings. Low pay has spawned the exploitative pay-day loan industry - respectable loan sharks. And then the pressure mounts, credit dries up and people have to repay rather than spend. At the bottom end of the income scale, they stop spending on essentials. Economic crisis and social crisis walk hand in hand.

So, how about this as an experiment for boosting demand through poverty alleviation?
From February 2, around 60,000 of Croatia’s poorest citizens are having their debts wiped under the country’s “Fresh Start” scheme. This figure carries greater significance when placed into context of Croatia’s population of around 4.4 million. Having endured six years of recession, and with growth forecasts remaining stubbornly low, around 317,000 Croatians have found their bank accounts frozen due to debt, stifling economic demand. 
Those with a debt under the equivalent of around £3,300, with a weekly income under £91 and with no investments or savings have now found themselves with a clean slate.

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