Wolfgang Munchai writes: Whenever you are in a room with European officials and discuss the euro, there is usually somebody who raises his finger and says: “This is all well and good, but it is ‘against the rules’.” It then gets very quiet.

“Against the rules” is a big thing in Europe. Most people do not really know what the rules are. But they do know that rules have to be followed.

Rules of the mind is what we are dealing with in the European debate about the single currency. Many of these rules either do not exist, or they constitute some rather far-fetched interpretation of existing rules.

During the recent Greek crisis, I came across a completely new rule. I first heard it from Wolfgang Schäuble, the German finance minister. It says that countries are not allowed to default inside the eurozone. But a default was perfectly fine once they leave the euro, on the other hand.

I later read that Otmar Issing, the former chief economist of the European Central Bank, used almost exactly the same phrase as Mr Schäuble in an Italian newspaper interview. If so many important people say it, then surely it must be true, mustn’t it?

Actually, as it turns out, there is no such rule. There is only Article 125 of the European Treaty on the Functioning of the European Union. Article 125 says that countries should not take on the debt of other countries. This is also known as the “no-bailout” clause — though that, as it turns out, is a rather loaded interpretation.

In its landmark Pringle ruling — relating to an Irish case in 2012 — the European Court of Justice said bailouts are fine, even under Article 125, as long as the purpose of the bailout is to render the fiscal position of the recipient country sustainable in the long run.

In another landmark ruling, from June this year, the ECJ supported Mario Draghi’s promise to do whatever it takes to help a country subject to a speculative attack.

The ECB president’s pledge had previously been challenged by the German constitutional court. In both cases, the ECJ did not support the predominant German legal interpretation.

So what then can we infer from the previous ECJ rulings in the absence of an explicit ruling from the court on debt relief?

An interesting article by three authors from Bruegel, a European think-tank, concludes that debt relief is almost certainly consistent with current law.

The argument goes as follows: in the Pringle case, the court gave the go-ahead for bailouts in principle as long as they are intended to stabilise public finances. In the ruling on the ECB’s backstop, the court accepted the principle that the ECB could incur a loss on its asset purchases, as long as the bank follows its own mandate.

Add the two together, and you have debt relief. I am not sure whether the ECJ would follow this argument precisely if this ever came to court. The court would probably impose some constraints. But I would be surprised if the ECJ were to follow the German interpretation now when it rejected it previously.

Why do Germany and the ECJ disagree so much? The overt reason is that European law on monetary union is internally inconsistent, and thus open to different interpretation. It neither allows an exit, a default nor a bailout, and has therefore no clear procedure in the event of a financial crisis.

The German view is that the “no bailout” clause is the strongest of them all and must therefore take precedence. Others disagree.

In addition, German constitutional lawyers do not allow economic considerations to enter their legal arguments, while the ECJ justices do. At a deeper level, the disagreement is not about the law, but about politics and economics. The new “no-default” rule is a political aspiration dressed up as legal constraint.

What is really happening is that Germany does not want to grant Greece debt relief for political reasons, and is using European law as a pretext. Likewise, when Mr Schäuble proposes a Greek exit from the euro, ask yourself what rule that is consistent with.

The fact is they are making up the rules as they go along to suit their own political purposes.

The next managing director of the International Monetary Fund (IMF) is likely to come from outside Europe when current leader Christine Lagarde eventually leaves, the deputy head of the Washington-based fund said in an interview broadcast on Saturday.

IMF First Deputy Managing Director David Lipton said the tradition by which a European heads the fund while an American leads the World Bank was coming under pressure and the next appointment would be “strictly merit-based”.

Described on the same radio programme as an “incredible anachronism” by former IMF Chief Economist Kenneth Rogoff, the convention that has ensured that Europeans lead the fund has been increasingly challenged during the euro zone crisis. Lipton said that when Lagarde steps down, her successor would probably come from a non-European country. “With candidates coming forward from around the world, I think it’s much more likely the next time around than it has ever been,” he said. “There are more and more eminently qualified people from outside Europe and the United States and I think the fact that there’s been so much focus on crisis in the United States right at the early stages of the global financial crisis and with Europe, is going to lead to a sense that there has to be a broader pool for the leadership role,” Lipton said.

Lagarde, a former French finance minister, took over as head of the IMF in 2011 after her predecessor, Dominique Strauss-Kahn was forced to resign over a sex scandal. Her five-year term comes to an end next year but she was quoted last month as saying she would consider a second term if she had the support of the IMF’s members. Although there is no formal requirement that the leader of the IMF come from Europe, it has been the practice ever since the institution was set up after World War Two, while the World Bank has always been led by an American.

Next Head of the IMF WIll Probably not come from Europe

Joschka Fischer writes:  During the long night of negotiations over Greece on July 12-13, something fundamental to the European Union cracked. Since then, Europeans have been living in a different kind of EU.

What changed that night was the Germany that Europeans have known since the end of World War II. On the surface, the negotiations were about averting a Greek exit from the eurozone (or “Grexit”) and the dire consequences that would follow for Greece and the monetary union. At a deeper level, however, what was at stake was the role in Europe of its most populous and economically most powerful country.

Germany’s resurgence after World War II, and its re-establishment of the world’s trust (culminating in consent to German re-unification four and a half decades later), was built on sturdy domestic and foreign-policy pillars. At home, a stable democracy based on the rule of law quickly emerged. The economic success of Germany’s welfare state proved a model for Europe. And Germans’ willingness to face up to the Nazis’ crimes, without reservation, sustained a deep-rooted skepticism toward all things military.  Has Germany Changed?

Victor Mallet writes: India’s government has signaled it will remove control of interest rates from the central bank, in a controversial plan that has been attacked by some economists and bankers as a threat to independent monetary policy but welcomed by others as an overdue modernization. The finance ministry proposal is the latest salvo in a long struggle between successive governments and central bank chiefs over the need to boost economic growth on the one hand and the urgency of curbing India’s consistently high inflation on the other. The 188­page draft Indian Financial Code — produced over the past India moves to reduce central bank powers on interest rates for four years by the financial sector legislative reforms commission and modified by the government after public feedback — envisages a seven ­person monetary policy committee, with four members appointed by the central government and three from the Reserve Bank of India. Under the present system, the RBI governor — Raghuram Rajan, the former International Monetary Fund chief economist — is appointed by the government and is ultimately answerable to the finance minister of the day. In practice, however, he controls monetary policy and has veto power over the existing advisory committee of RBI members and outside appointees that sets rates.

Some experts welcomed the draft code, including the provision for an MPC, and said it could even enhance the central bank’s influence over monetary policy given the absolute legal power over the RBI currently enjoyed by the finance ministry.

“Anyone who says the Indian Financial Code is taking power away from the governor is crazy . . . We should absolutely not make a fetish about having a powerful governor,” said Ajay Shah, professor at the National Institute for Public Finance and Policy, the research institution. Prof Shah said the current system was opaque and open to abuse through negotiated deals between the RBI and the finance ministry, and he dismissed as “public relations” the suggestion that Mr Rajan was running a tighter monetary policy than the government wanted.

Mr Rajan, he added, was doing the bidding of Prime Minister Narendra Modi in keeping the rupee strong and conducting the “most intensive exchange rate policy in the past 20 years”.

Under the proposed code, it would remain the responsibility of the RBI to ensure that inflation targets are met, even though central government members would have a majority of the votes on the MPC. “For the RBI to be accountable without having a majority in the MPC could eventually compromise the efficacy and credibility of the central bank, and hence we do not view this as a medium­term positive,” Nomura’s analysts said. Rajeev Malik, senior economist at broker CLSA, called the MPC proposal “disappointing” and said it appeared to reflect insecurity over monetary policy rather than the rumoured bad blood between members of the government and Mr Rajan.

Andrew Higgins writes:  To many Greeks, the debt the country has amassed is the evil fruit of austerity policies, imposed from the outside, that asphyxiated its economy and trampled on its sovereignty.

To the International Monetary Fund, the debt of more than 310 billion euros, or almost $339 billion, is more of a mathematical problem. After years in which it was a stern advocate of tough austerity policies, it now says that there is no way that Greece can reasonably pay its debts and needs to have a substantial amount of it forgiven.

Then there is Germany, Greece’s largest single creditor, which treats Greece’s debts as a sacrosanct commitment that must be paid as a matter of law and of principle.

Mr. Tsipras has for years been demanding a European Debt Conference modeled on the London Debt Agreement of 1953 that wrote off about half the pre- and postwar debt taken on by West Germany.

Persuading creditors to accept losses has never been easy or free of a political component. The London conference negotiations dragged on for two years and involved representatives of public and private creditors from 26 countries.

But the United States, Berlin’s biggest public creditor, pushed through the deal, largely out of strategic concerns heightened by the Cold War.

The Greeks, by contrast, “are just not important or powerful enough to make everyone want to rescue them,” said Timothy W. Guinnane, a professor of economic history at Yale University who has studied the 1953 London negotiations.

The contentious negotiations this month that produced the framework agreement for the new bailout of Greece offered only a vague pledge to consider the possibility of “longer grace and payment periods” on the condition that Greece first meets its own commitments to tightly control spending.

Chancellor Merkel, who continues to rule out debt forgiveness, said on Sunday that Germany would entertain a discussion about steps such as lower interest rates and longer payment terms, but only after the bailout agreement is finalized and Greece passes a first assessment of its progress in carrying out the policy changes demanded by the creditors.

Christine Lagarde, the managing director of the I.M.F., told a French radio station last week that the new Greek bailout now taking shape is “categorically not” viable without debt relief.

A big reason for the standoff is the nature of Greek debt. In many previous international negotiations — including those over money owed by Latin American countries during the region’s debt crisis in the 1980s and the €107 billion in debt that Greece got written off in 2012 — the creditors were mostly foreign banks and other investors.

When Germany and other eurozone nations fashioned their first bailout to Greece in 2010, they offered a package of bilateral loans, an approach that, according to Mr. Dallara, the American debt negotiator, “introduced an unusual level of politicization into debt negotiations.”

Germany’s contribution to the two initial bailouts was more than €50 billion, making Berlin the biggest contributor. But some experts believe that once German contributions to the European Central Bank and to other lenders are taken into account, Berlin is on the hook in Greece for upward of €100 billion.

The Rocky Road to Globalization:

The European Union has filed antitrust charges against Sky’s UK arm and six major US film firms, Disney, Warner Bros, NBCUniversal, Paramount Pictures, Sony, and Twentieth Century Fox for their alleged geo-blocking of content.

The companies are accused by the EU of allegedly unfair licensing agreements between Sky and the TV and film companies.

The agreements between the parties require Sky UK to block access to films through its online or satellite payment services, withholding access for some EU customers based on their location.

Competition commissioner Margrethe Vestager said in a statement: “European consumers want to watch the pay-TV channels of their choice regardless of where they live or travel in the EU.”

“Our investigation shows that they cannot do this today, also because licensing agreements between the major film studios and Sky UK do not allow consumers in other EU countries to access Sky’s UK and Irish pay-TV services, via satellite or online.”