During the many instances of political commotion, UK pundits claimed that the EU simply did not “get Northern Ireland” and failed to understand the place and its politics, which led it to design solutions skewed against the interests of the unionist community. The politics of Northern Ireland, however, is primarily the business of the UK and to some extent Ireland as co-guarantor of the Good Friday (Belfast) Agreement and its North–South cooperation. The EU entrusted the two signatory countries, Ireland and the UK, to ensure the full compatibility of the Brexit deal with the Good Friday Agreement. Could the UK have signed up and ratified the two agreed versions of the deal if they contradicted its international law obligations under the 1998 peace agreement? UK negotiators and governments had the support of top Whitehall lawyers to guarantee the compatibility between all of the UK's international obligations. Government lawyers never questioned the lawfulness of the Withdrawal Agreements in conversations with the EU. Politically, the UK government accepted the terms of the deal, which it recommended to Parliament. The accusation that the EU violated the Good Friday Agreement by ignoring unionist concerns is an odd one therefore, given the UK's own political and legal endorsement in 2019.

Saying the EU is not a signatory to the Good Friday Agreement does not downplay the need for Brussels to understand unionist concerns, which are key for the proper implementation of the agreed obligations. Since early 2018, Barnier's team went out of its way to have frequent contacts with a wide range of Northern Irish stakeholders and discuss the state of play of negotiations and possible ways forward. Whereas business leaders expressed qualms on what was coming out of the talks, the general feedback was that the solutions could work to the benefit of Northern Ireland's economy, with proper UK government support and preparation. Barnier himself was impressed on his visits to Northern Ireland by the discrepancy between the political polarization and the more pragmatic take from businesses and farming. His team often heard feedback from people in Northern Ireland that it gave them more information than London, at least until 2020.

“There is still scope for compromise”, the German chancellor Angela Merkel commented on the ongoing talks. In London, Prime Minister Boris Johnson declared “the trade talks are over”. It was 16 October 2020, two months before Johnson agreed to a deal. On that day, Michel Barnier said in a press conference in Brussels that he was ready to intensify talks. Simultaneously, David Frost, Johnson's negotiator, lamented in a tweet that the EU refused to accelerate negotiations. Barnier looked with incredulity at yet another bizarre situation created by a British government searching for a Potemkin confrontation. After ten days of standstill, talks resumed. “I am not sure why this political drama was needed”, Barnier told his team of a hundred EU negotiators who were eager to go back to work and conclude a deal. Brexit in London was a different tale from Brexit in Brussels.

Initially, the victory of the Leave vote in the June 2016 referendum caused a shock in Brussels. It happened one year after the EU overcame sharp divisions between member states in order to avoid “Grexit”, the exit of Greece from the eurozone. There were tensions between governments on migration flows and rule of law violations by Poland and Hungary. The crisis Brexit would cause “could and probably will dwarf them all”, said the BBC's Chris Morris on the day after the referendum. Many thought Morris was on point but the story turned out differently. The political crisis in London never crossed the channel. EU member states preferred to engage in fights with each other on migration, economic and monetary union, climate change, or the EU budget, to name but a few issues. For Brexit, the EU acted as a united club while Westminster tore itself apart. EU leaders concurred from the start on what to do and adopted a clear negotiation mandate for the European Commission and Michel Barnier. Paradoxically, the UK was less clear than the EU about what it wanted from Brexit, at least until December 2019 when Johnson won a comfortable majority and, in his words, “Bob's your uncle”.

On Tuesday 24 January 2017, in his fourth month as negotiator, Barnier took the lift in the Berlaymont building to go up a few floors and meet Margrethe Vestager, the powerful Danish member of the Commission in charge of competition policy. The plan was to continue their discussion of 2016 on the level playing field. Most EU capitals made clear by then that this was a possible deal breaker. By the time Barnier reached Vestager's office, she had to cancel the meeting. He ran half an hour late. In the corridor before the lift, he had stopped to watch a dramatic proceeding live on the iPhone of an advisor, both mesmerized by the pronouncement of the UK Supreme Court's ruling in the Gina Miller case on whether the UK Parliament had to vote before the government could launch the exit procedure. The Court ruled against the argument that the British people had settled the question. It concluded that British constitutional law required Parliamentary approval before the government could notify Brussels. In the days before the ruling, media had speculated that the top UK judges could ask the EU Court if the EU Treaty allowed for revoking withdrawal after notification, but the Supreme Court judges decided based on British law only. This left a crucial question unanswered in 2017, namely whether a country could under EU law change its mind after notifying its withdrawal. That question had enormous consequences for the power balance of negotiations. It made a difference if the UK could test the waters on a deal with or without a looming cliff-edge, so it was no wonder the proceedings stopped Barnier in his tracks on his way to the meeting.

Existing models are inadequate

Vestager knew Barnier well as the former Danish minister of finance. In 2012, she chaired the Ecofin Council, the meeting of the powerful finance ministers, on behalf of the Danish presidency. Together, they failed to cajole George Osborne into supporting a cap on excessive bonuses for bankers, one of the very few pieces of EU law for which Barnier failed to enlist UK support when he was single market commissioner. Barnier reconnected with Vestager in his first days at work. After seeing Mark Rutte on 3 October 2016, he saw the urgency to kick-start the work on a level playing field.

The negotiation tactics used by the EU and UK teams differed during the first months of 2020. Barnier tried to engage the UK on the EU's core demands and told his team to map all points of divergence in order to find ways to overcome them rapidly. Member states agreed to publish a full text of a proposed agreement in March, after round one, framed as an invitation to the UK to take a position on all elements and start working in earnest. It was not a take-it-or-leave-it offer but the UK refused to use it as a base for collaborative work. Anna Mikhailova wrote in the Mail on Sunday that Frost took inspiration for his approach from a business coach, Igor Ryzov, whose book The Kremlin School of Negotiation compares entering negotiations to engaging in combat. That battle metaphor dovetails with the assumption of pro-Brexit media that the UK had to crush the EU, which was hardly a good basis to create a sustainable relationship.

Frost interpreted the EU's offer as wanting to curb UK sovereignty and rejected the proposed obligations on fundamental rights, level playing field and fisheries. He insisted on creating soft governance constraints instead of sanctions and retaliation across economic sectors for non-compliance in one area. The UK stalled and rejected the core EU demands that were outside of the scope of its own mandate in its Command paper. Frost's emphasis on sovereignty as breaking free from obligations put the EU in a position of demandeur. Barnier kept stressing that the offer of zero-tariff, zero-quota access to the single market was a generous one, to which Frost replied the UK did not value that offer if it suppressed its freedom. It was hard for the EU team to gauge if he meant this. Gove and Frost both proposed to reintroduce tariffs, which Barnier rejected, but was that quid pro quo a bluff or was it really to try to water down or even eliminate obligations on the level playing field? Was the UK ready to walk away, which it “seriously contemplated”, as Frost said in his 2022 Zurich speech?

A recurrent UK critique claimed Barnier was a theologian of the EU project for whom dogma was more important than a good outcome. Dominic Raab's “computer says no” mantra, originally a recurring sketch in the comedy series Little Britain, attacked Barnier's “rigidity”. Moderate Remainers and Brexiters echoed it in favour of a Chequers’ style relationship. Gavin Barwell wrote in his book Chief of Staff that Berlin, The Hague and even Juncker wanted to be more accommodating than Barnier, as if Barnier had a checklist that prohibited applying the creativity national governments or his own president wanted from him. An email annotation from Barnier's team just before Salzburg stated Downing Street thought Chequers still had a 60 per cent chance, partly based on positive vibes from May's meetings with Macron and Merkel. It concluded “in summary, a lot of wishful thinking”, based on Brussels’ own intelligence from national capitals.

The German cavalry coming to the rescue of the UK to rein in Barnier and protect its export economy was a chimera and yet remained a recurring meme in London during three and a half years of negotiations. The reality of negotiations looked often different. When Barnier tried in October 2017 to push Berlin and Paris to move beyond phase one into a discussion on the future, both capitals stopped him in his tracks. One episode of the December 2017 European Council offers another challenge to the meme that a pragmatic Berlin wanted to shift a hard-line Commission towards a more sensible approach. It was 14 December, late in the afternoon, when a few advisors conferred in Barnier's office. Earlier on that day, Merkel had surprised her closest counsellors and questioned a plan submitted to her on the plane. She was flying to Brussels to attend the European Council, a few months after the German elections of September 2017. Diplomats had indicated in preparatory meetings that Berlin could agree to a “standstill transition”, giving early certainty to British companies on that transition. On the plane, Merkel sat in the front with a few close advisors and expressed doubts. She found this too generous to the UK.

Beyond EU principles supported by national governments and Barnier's inclusive method to build a common front, the unity was rooted in a sense of political responsibility of prime ministers for the survival of the European integration project. The eurozone was just healing from raucous divisions. In 2015, the Greek people rejected in a referendum an EU aid package with strings attached. The vote pushed the country to the cliff-edge of leaving the eurozone. US President Obama, Juncker, Hollande, Merkel and ultimately the Greek Prime Minister Tsipras pulled the country back from the cliff. Merkel spent political capital against conservative politicians in her own party who wanted Greece out. Two months later, the migration crisis and Merkel's “wir-schaffen-das”-welcome to Syrian refugees travelling through Hungary put enormous pressure on the Schengen border-free travel zone. New terrorist threats emerged. In March 2016, terrorists bombed Brussels airport and the Maalbeek metro station close to Schuman, killing more than 30 people, a few months after the gruesome Bataclan and Stade de France attacks in Paris. Voices in Russia, which invaded Crimea two years earlier, welcomed Brexit as a weakening of the EU and a possible lifting of sanctions now that a “hardline UK” was leaving. This was a time for the EU to stand together faced with the possibly existential threat of the UK's departure. EU presidents affirmed on 24 June 2016: “the Union of 27 member states will continue” and leaders decided to meet soon in Bratislava to discuss how to move European integration forward. As often in difficult times, a roadmap for future and deeper cooperation offered an element of comfort to EU leaders.

In the months after the June 2016 referendum, some governments feared Brexit might trigger a domino effect on their country. Rising populism and Euroscepticism led to speculation on Nexit, Frexit, Swexit and other neologisms that popped up in tandem with the popularity of the Dutch Geert Wilders, the French Marine Le Pen and the anti-European Swedish Democrats of Jimmie Äkesson. Mark Rutte of the Netherlands had in mind the March 2017 elections, and people in Brussels looked with concern at Le Pen's polling scores before the first round of the presidential elections one month later.

Theresa May had three goals. They were (1) avoiding a hard border on the island of Ireland, (2) no controls on goods flowing from Great Britain to Northern Ireland and (3) the UK's departure from the EU single market and customs union. The border between Ireland and Northern Ireland became hereby a Brexit trilemma. Where would the inevitable border checks on goods between the two sovereign jurisdictions take place? The law of trilemmas is that one can only attain two of three goals. May for a long time did not accept that she had to limit herself to two goals because she wanted to design a new model of frictionless trade with the EU despite the UK's departure from the single market and customs union. This is why the Joint Report of December 2017 put forward as a first option the UK's intention to solve the conundrum of the border on the island of Ireland in the future relationship. If the future could not crack the problem of the border, the report stated that the UK would “propose specific solutions”. The prime minister favoured a combination of those two avenues to avoid a hard border. The EU, however, refused to commit to these two options in the Joint Report in light of the UK's decision to leave the single market and customs union and the threat it posed for North–South cooperation on the island of Ireland. As a result, the only truly joint EU–UK commitment was Northern Ireland's alignment to EU rules, if all else failed. The formulation of May's preferences was vaguer, which many UK observers missed when the text became public on 8 December. They were things the UK “intended” to do or “undertook” to propose. The EU told May's team to hurry up with formulating its proposals.

British newspaper analysis added to the confusion by suggesting the report meant UK-wide alignment to EU rules. Given how talks unfolded in Brussels, there could be no misunderstanding that the use of the “Belfast veto” against alignment to EU rules, as put together in London, was an internal UK matter and that the agreed alignment concerned only Northern Ireland. It was not difficult for UK spin-doctors to convince reporters of the opposite. The text stated “the United Kingdom will maintain full alignment with those rules of the Internal Market and Customs Union which, now or in the future, support North–South cooperation, the all-island economy and the protection of the 1998 [Good Friday] Agreement”. The formulation reflected international law whereby the UK is the sovereign state that commits to obligations on behalf of its devolved entities.

At the end of April 2017, May told Juncker over dinner in Downing Street that UK migration law would apply after Brexit to EU nationals already residing in the UK, which implied a considerable decrease in rights compared to EU law. Social benefits, access to healthcare and family reunion rights were more generous under EU free movement than UK migration law, which in turn is stricter than EU law on deportations. Once negotiations started, the UK team led by the Home Office altered that position radically and accepted EU law as the starting point of the work. The decision to replicate EU law concepts in the Withdrawal Agreement avoided a discussion from scratch on each right, which would have taken time and most probably become acrimonious.

On the money, in contrast, the UK argued for the first three months of the talks that Brexit cancelled all its debts. The chapter on citizens’ rights advanced much faster therefore in the first weeks than the chapter on money, which worried Barnier. It would be hard to defend that the EU was holding out on citizens’ rights because of unresolved budget claims. Activists on citizens’ rights criticized the package approach and advocated a stand-alone agreement. They underestimated how much the EU needed the upper hand that came with sequencing, given where the UK was politically on taking back border control, reducing free movement of EU nationals and rejecting the role of EU judges after Brexit. Whereas the EU imposed sequencing of talks primarily to make sure the UK paid all its financial obligations, sequencing became equally important for a good deal on citizens’ rights since it gave Barnier's team levers to push through more effective enforcement mechanisms and overcome the UK's resistance to joint enforcement as an intrusion of its sovereignty.

Earlier in 2016, Nick Timothy, May's chief of staff, tried to convince national governments to sort out citizens’ rights before notification with a vague proposal that hinted at the protection of a few rights only and unclear enforcement tools. It opened the door to discretionary behaviour by the Home Office

We should always be pro et sympa, Barnier told his team a few hours before the negotiations started on 2 March 2020, a French shortcut for “professional and nice”, but also, he added, “strict and firm, this will not be an easy negotiation”, particularly on the new economic relationship. Around ten metres separated the two chief negotiators in the Berlaymont meeting room, but the chasm on the meaning of the talks was much bigger. Frost's main goal was to assert the UK's newly gained sovereignty and avoid legally binding commitments with the EU. In contrast, Barnier wanted to make sure the UK committed to legally binding obligations as a precondition for a new trade and security partnership, in particular on the level playing field, as requested by his mandate.

This would not be the easiest in the history of trade negotiations, as David Davis once suggested, but it would have to be one of the quickest. In January, Johnson told Ursula von der Leyen in London that he excluded an extension of the legal and economic status quo of the transition period beyond 2020. Barnier did not see political space for Johnson to ask for an extension. He had just won the elections on the claim that he would get Brexit done and could hardly tell public opinion that he needed more time to sort it out. This left negotiations with two scenarios: a deal or no deal to exit the transition period on 31 December 2020. A new cliff-edge loomed and a new clock started ticking. There was no time to waste, as the amount of technical matters to solve, in particular on trade, was enormous. Member states adopted a negotiation mandate on 25 February 2020, which was 22 days after the Commission made a proposal.

The future is not withdrawal

The opening round in March showed visibly how different negotiations on the future were from withdrawal. Rather than a few negotiators convening in a small meeting room, EU and UK delegations spread out in large rooms for parallel sessions. The Commission rented extra space in a conference centre. More than one hundred civil servants participated in the kick-off round, a number that grew to almost two hundred on the EU side alone as talks unfolded.

Brexit was a UK choice that raised existential challenges for the Irish government. The 1998 Good Friday (Belfast) Agreement created a North–South Ministerial Council to facilitate and intensify cooperation across the land border between Ireland and Northern Ireland. These provisions formed part of a larger compromise that accompanied the peace process and led to a normalization of life in the communities on both sides of the border. The peace accord in combination with EU membership of the UK and Ireland made the border increasingly invisible. Brexit was the proverbial bull in a china shop. It destroyed a fragile political equilibrium.

The UK was about to take back control of its borders. Its decision to leave the single market and customs union risked putting Ireland in an impossible position, as it had to make sure all goods imported from the UK respected EU rules. Because of Brexit, this logically implied controlling the 499 km land border that meanders across the island, a scenario that raised horrific technical and regulatory challenges. Ireland would have to administer entry and exit declarations of all goods crossing that border, possibly charge tariffs and police VAT fraud. It would have to make sure no prohibited or counterfeited goods entered the EU's territory via the land border. Customs issues were just one aspect. Irish authorities would also become responsible for ensuring all goods, food products and live animals entering Ireland complied with EU health and safety standards.

The principle that each national customs authority must play by collective EU rules enables the clearance of goods and their free circulation in the EU. Some pro-Brexit commentators blamed EU bureaucracy for obstinacy and claimed Ireland should dispense with all of this, omitting to add that every sovereign jurisdiction in the world applies similar rules to protect the integrity of its national territory and state revenues. If Ireland could not guarantee the fulfilment of its responsibility as an EU member at the external border, its place in the single market and customs union would be endangered, which could ultimately threaten the survival of that single market in case continental countries started imposing intra-EU border checks on goods coming from Ireland.

A major issue arising out of the Vietnam War is the relationship between inflation and unemployment. This is known as the debate over the “Phillips curve”. It has divided Keynesian and neoclassical economists since the 1960s.

New Keynesian models still build in a permanent positive relation between inflation and economic growth. They do this by assuming rigid prices, and monopoly price increases that lead to a relative price increase that they count as higher inflation. Because of the assumed price rigidity mechanism, the price increase is set so that it can raise output while inflation increases. In contrast, neoclassical work finds a negative relation between an inflation increase and economic growth.

The debate surrounds Phillips's (1958) findings for UK data showing episodes in which higher inflation was linked to lower unemployment, in sequential periods over time. Samuelson and Solow (1960) then applied this empirical finding to a policy suggestion. They argue that if, the Fed raised the inflation rate, the unemployment rate would fall, so we could choose a policy of allowing higher inflation to lower unemployment.

The new Keynesian school of economics has since assumed a permanent negative relationship between inflation and unemployment, although commonly with the substitution of economic growth for employment. Neoclassical economists instead argue that the inflation– unemployment negative relation is temporary, found only under certain conditions and with no foundation for conducting monetary policy based on it. Sorting out what has occurred between inflation and unemployment is important for deciding monetary policy going forward.

If there were a permanent negative relation, then a positive inflation rate might be warranted to push unemployment levels down. If there is no permanent relationship, then there would be no basis for trying to lower unemployment by increasing the inflation rate. Rather, it would be worthwhile to understand when exactly the temporary episodes have arisen, so that we can seek to explain them as they occurred historically.

Inflation does rise episodically at times, especially during wars and crises. Based on Phillips curve episodes, Keynesians argue that some inflation is good, and this bleeds into the debate on what the target rate of inflation should be.

The science of contemporary monetary theory arose to solve the problem of how the central bank should conduct monetary and banking policy under a fiat monetary regime. An important result was to provide an optimal amount of inflation tax revenue through inflation tax targeting. The inflation rate to target was found to be very low, such as that consistent with natural seigniorage.

Nonetheless, the Fed became typical of international central banks by financing significant US Treasury spending, especially during wars and crises. It also decided to try to maintain the growth of the global financial system. Although the conduct of the Fed's banking insurance role has become murkier, its inflation tax collection policy was clear up until 2008.

From Bailey (1956) to recent news headlines, economists have recognized the inflation tax as equivalent to a fiscal tax, enacted by the monetary authority through discretionary action to finance Treasury expenditure. Recently, Leeper and Zhou (2021) find that 50 per cent of new marginal fiscal expenditure in developed economies is financed by increasing the inflation tax. In its 13 October 2021 editorial “The inflation tax rises”, The Wall Street Journal (2021) anticipates the high inflation tax episode that was experienced in 2022.

The Fed is unbound by the usual process for raising taxes. Article 1, section 7, of the US Constitution explicitly states: “All Bills for raising Revenue shall originate in the House of Representatives. The Senate may propose or concur with Amendments as on other Bills”. The House tax bills must arise in the Ways and Means Committee, which is the “oldest committee of the United States Congress, and the chief tax-writing committee in the House of Representatives”, according to the Committee's website, which was “[f] irst established as a select committee on July 24, 1789 … and was formally listed as a standing committee in the House Rules on January 7, 1802”.

The US tradition of a tax-raising committee is modelled on that of the United Kingdom. UK Parliament web pages state that “Ways and Means is a traditional term for taxes or other charges levied on the public in order to fund Government spending”. The United Kingdom had a formal Ways and Means Committee from 1641 to 1967 that originated proposals for taxes.

The Fed's money and banking policy of fixing interest rates below the inflation rate risks the global financial system's continued resilience. The system of efficiently allocating capital is called capitalism. Capitalism, with globalization, emerged through the international financial system, from Renaissance Italy to nineteenth-century Britain and into the modern era.

Global capitalism is a vital part of free trade. Adam Smith's Wealth of Nations (1904 [1776]) advocated free trade in goods and in capital. The British colony that was the precursor to the United States was well aware of the limits to trade through taxation of the markets engaged in trade. The 1776 Declaration of Independence coincides with Smith's 1776 statement of efficient allocation through free trade.

The US Constitution sufficiently innovated on England's Magna Carta to enshrine free trade in social, economic and political spheres, making the United States the centre of world democracy, freedom and capitalism. Milton Friedman's Capitalism and Freedom stresses these interconnections, with “economic freedom as a means to political freedom” (Friedman 1962: 8), whereas “capitalism is a necessary condition for political freedom” (1962: 10).

Adam Smith, as a student and then professor at the University of Glasgow in Scotland, essentially invented modern economics. A professor of moral philosophy at Glasgow, starting in 1752, Smith wrote a triad of treatises on free culture, law and economics, respectively.

The first book, published in 1759, followed the theme of his chair, The Theory of Moral Sentiments (Smith 1853 [1759]). This landmark achievement sets out how an equilibrium culture of norms arises through free social interaction and exchange. The treatise takes as given the legal and economic environment in which social norms flourish.

Smith next published, in 1763, his Lectures on Justice, Police, Revenue and Arms (Smith 1896 [1763]). This second treatise describes how the social and economic setting induces a demand and supply for law that results in legal equilibrium, provides the enforcement of property rights and creates the foundations for free social and economic exchange.

Smith's last treatise, published in 1776, was An Inquiry into the Nature and Causes of the Wealth of Nations (Smith 1904 [1776]), commonly known simply as The Wealth of Nations.