A BETTER BANK BAILOUT:

All of this diverted attention from where the real seeds of change, and potentially an answer to Europe's growth problem, may have been planted. 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.

The program is expected to cost around £20 million but the government is confident the long-term benefits will outstrip the immediate costs. Such a scheme is considered by many to be unprecedented and exceptional, dividing economic opinion.

Some warn that banks and private companies will be dissuaded from providing credit to the country's citizens in the future due to fears of having to burden additional hits in the future. This may, damagingly, lead to higher interest rates as lenders seek to protect themselves from higher risk.

But others suggest this may be exactly what the ailing economy needs. Other European countries have looked to monetary easing in order to boost demand in the economy but this has been largely ineffective as banks have failed to pass on the benefits to potential borrowers. Instead, Croatia is taking a more direct route to stimulating demand.

By removing these people from their debt trap, thousands of potential consumers will suddenly be returned to the economy. This additional demand will stimulate further production and consumer sales. This, in turn, means more orders from suppliers and greater output needed from manufacturers. This can only have a positive impact on economic growth and potentially lead to additional social improvements, including more employment opportunities.

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