Željko Garača
Episode · #179
A VISTA Željko Garača
Guest Željko GaračaHosted by Gordana GehlencherMay 3, 2026
Željko Garača
About this episode
What you'll hear in this conversation
Željko Garača, a professor from the Faculty of Economics in Split, has long offered a contrarian view on economic policy, often challenging mainstream approaches to Croatia’s financial problems. As the country navigates a complex economic fallout from the pandemic, his alternative ideas — once dismissed as unconventional — are gaining new relevance. He argues that the state's initial response missed critical opportunities, focusing on job preservation over production and deploying fiscal capacity too early. This conversation cuts through conventional wisdom to dissect the true nature of the crisis, the pitfalls of misdirected subsidies, and the untapped power of a central bank’s role in national recovery.
Insights from the conversation
What to take from this episode
01
Garača points out that initial government measures were "destimulative for production," prioritizing job preservation without ensuring businesses had a reason to produce. Focusing solely on jobs in a crisis can create perverse incentives, where businesses might reduce output to qualify for state aid, undermining the very production capacity needed for recovery.
02
Instead of general aid, Garača proposed the state directly purchase unsold goods, provide continuous aid tied to actual revenue drops, and cover fixed costs for businesses forced to close. Effective state intervention in a crisis should be surgical, structured to guarantee market for producers, adjust aid dynamically to need, and insulate firms from unearned fixed costs, thereby incentivizing continued operation.
03
Garača criticizes the early and intense deployment of financial aid, arguing it "lost fiscal capacity" needed for the real recovery phase after the health crisis subsides. Exhausting a nation's fiscal reserves at the onset of a crisis, before its full economic impact is clear, leaves little ammunition for the sustained effort required to stimulate a genuine post-crisis rebound.
04
He clarifies that the crisis started as a "supply crisis" — people wanted to buy but couldn't — before quickly evolving into a "demand crisis." Misinterpreting the primary nature of a crisis, whether supply or demand-driven, leads to ineffective policy, as remedies for one can exacerbate the other without precise timing.
05
Garača warns that stimulating consumption must be "directed towards products, goods, and services that are the result of domestic production," otherwise it will worsen the trade balance. Unfocused consumer stimulus, if it primarily boosts imports, can undermine domestic industries, drain national wealth, and lead to greater public debt, turning a short-term boost into a long-term liability.
06
He cites examples in agriculture where subsidies are given for "surface area, not production," or "the number of livestock, not what that livestock produces," leading to falling output despite investment. Subsidies structured around inputs rather than outputs create opportunities for exploitation and disincentivize genuine production, leading to systemic inefficiencies and declining sector performance.
07
Garača argues the state "must intervene in the economy, but in the wrong way" – not through micro-management of companies, but by creating a healthy environment for private initiative. The role of the state is not to run businesses or dictate individual corporate strategy, but to establish robust economic policies that enable and encourage private sector growth and innovation.
08
He identifies monetary policy over the last twenty-five years as "the single biggest detriment to the Croatian economy," yet it remains largely unquestioned. When a critical economic lever operates unchecked and undiscussed for decades, its cumulative negative impact can far outweigh other debated issues, quietly undermining national prosperity.
09
Garača notes the Croatian National Bank (HNB) recently began doing what was previously "unthinkable, heresy" by indirectly financing the deficit through bond purchases from commercial banks. Crisis can redefine the acceptable boundaries of central bank action, revealing previously taboo but effective methods for a nation to manage its fiscal challenges and ensure liquidity.
10
He suggests the HNB, with its international reserves, could have directly bought back maturing state bonds on the international market, converting external debt into domestic debt. A central bank with strong international reserves has the capacity to internalize external debt, a strategic move that can reduce foreign exchange risk and strengthen national financial autonomy, especially when supported by currency swap lines.