The need and the scope of belt – tightening in crisis stricken countries is due to be one of the central topics during the G20 summit in Moscow, as economic growth around the world is getting increasingly stifled by austerity measures.

It is becoming increasingly evident that austerity brings almost no fruit. A two – day G20 meeting in the Russian capital is going to examine the problem.

"We'll propose to change the Toronto agreements, possibly by changing its parameters. They are not met at the moment, and they should be changed," the Wall Street Journal (WSJ) quotes Anton Siluanov, Russia’s Finance Minister.

In 2012 G20 leaders agreed in Toronto to cut their budget deficits 50% by 2013, as well as at least stabilize their government debts by 2016.

Economists calculated then that a €1 cut in the budget would cost about 50 European cents in lost growth, the real figure looks more like €1.50 for each €1 cut, according to the IMF and the G20's economic advisers.

The most recent economic data shows recovery has so far been anaemic, with Thursday’s figures showing the steepest year on year contraction in the eurozone since 1Q 2009. Even the area’s economic powerhouses – Germany and France – slid into the red in the last quarter of 2012, compared to the previous 3-month period. The latest report on the US economy was also an icy shower, as the country’s GDP showed a 0.1% contraction in 4Q 2012, while everybody expected it to grow 1.1% during the quarter. 

"A third of the G20 is in recession. We need to do more to get people back to work and Toronto 2.0 is not the right answer," U.S. Treasury Under-Secretary Lael Brainard told a briefing earlier this week. "We must avoid jeopardizing the recovery with a premature shift to restraint."

Economic activity is stabilizing though at low levels, President of the European Central Bank, Mario Draghi said.

“We see volatility going down. All the interest rates are going down. The crisis started with lack of funding.  Large corporates are now able to fund, they are issuing significantly, 55% of issuance comes from non-core countries. Deposits of the banking system have stabilized. Banks also fund themselves. A range of factors show the situation is normalizing.” 

Russian President Vladimir Putin has expressed hopes the leaders of the G20 countries will be able to agree a new formula for calculating quotas at the International Monetary Fund.

"We think that at the upcoming Russian summit the G20 will be able to agree proposals for a new formula for calculating quotas that will take full account of the modern distribution of forces in the global economy," Putin said during a meeting with G20 finance ministers and central bank managers in Moscow. 

Vladimir Putin also said that the modern world financial architecture is in need of realignment, including at the IMF.

"In this connection, the G20 decision at the Seoul summit on reforming the distribution of quotas and votes at the IMF absolutely must be fulfilled," Putin said.

Currency wars talk 'overblown' 

Though not on the official agenda, the need to avoid currency manipulations, or so-called currency wars, will be one of the central topics at a Moscow G20 meeting. Member states are under pressure from host Russia to use "stronger and more specific language" on the issue, reports the WSJ refering to a senior G20 official.

However, the International Monetary Fund chief, Christine Lagarde, thinks talk about currency wars is unfounded and “overblown.” The euro has indeed strengthened and the yen has weakened recently, due to the right political measures that have been taken in Europe, and monetary easing in Japan, Lagarde said at a meeting with Russian President Vladimir Putin.

“On balance we’ve made good progress with respect to improving national policies. There is still a long way to go and now is certainly not the time to relax, to ease and start pointing fingers at each other,” Lagarde said. 

Angel Gurria, secretary general of the Organisation for Economic Co-operation and Development also believes there are no currency wars in existence. 

“We are further away from a currency war than we were two or three years ago when this phrase was coined. What we have today is a number of countries exploring the ways in which they can improve growth prospects, “ Mr Gurria said in his interview with RT Business.

This week the G7 reaffirmed that they won’t target exchange rates warmed up talks around the issue.

Among other issues to be discussed in the framework of G20 is stress testing for Russia’s financial institutions, as well as the ways to regulate rating agencies operations.

• A Permanent Economic Emergency