The gun is still being to the head of the people of Greece. Give us more austerity for a better future, cry the bankers. But, truth is more stimulus is the answer.

Per CEPR in a new paper:

The cyclically adjusted budget surplus – which measures the government’s fiscal tightening — moved from 5.7 percent in 2013 to 6.0 percent of GDP in 2014, or just 0.3 percentage points.  In the three years prior, the adjustment had been 3.2 percent of GDP (2012-13), 3.8 percent of GDP (2011-12), and 5 percent of GDP (2010-11).  The paper states: “It should be obvious that this huge drop-off in fiscal tightening would be the main cause of the return to growth.”

The paper describes the considerable economic and social costs of Greece’s adjustment, with output down by about 26 percent and unemployment currently at 25.8 percent, with youth unemployment at 49.6 percent. “Nominal wages have fallen by 16 percent in the private sector …and by 23.5 percent overall. The government has laid off about 19 percent of its work force.” Yet the IMF forecasts more hardship in the years to come, projecting unemployment to be 15.8 percent in 2018 – a decade after the crisis began – and in 2019 for Greece to be more than 9 percent below its pre-crisis GDP of 12 years earlier.

The solution is an “alternative macroeconomic scenario with a moderate fiscal stimulus, which brings the economy much closer to full employment over the next five years, with a lower net debt than currently projected by the IMF. This alternative is just one of many possible scenarios, some of which might include debt cancellation, or more help from the European Central Bank in maintaining low interest rates, especially in light of its recently announced quantitative easing program,” says the paper.