It seems unlikely, but the tiny Principality of Liechtenstein has an international dispute (it claims 1,600 square kilometres of territory confiscated by the Czechs in 1918). Little, however, is likely to come of this since the principality's military interests are the responsibility of the neighbouring Swiss, themselves not known for belligerency. Little else appears amiss: despite its small size and limited natural resources, Liechtenstein has developed into a prosperous, highly industrialised, free-enterprise economy with a vibrant service sector. Its 30,000-strong population enjoy living standards on a par with its larger neighbours (national product per capita is over US$22,000). Liechtenstein even has a monarchy which is popular. Here the present head of state, HSH Prince Hans-Adam II, explains the secret of Liechtenstein's success.

The British monarchy is suffering a loss of public support. How do you explain the enduring popularity of Liechtenstein's monarchy?

We live in a century in which the world has experienced dramatic and rapid changes, and therefore public opinion can change at short notice. Nevertheless, I don't think that in the foreseeable future the majority of the population wants to turn Britain or Liechtenstein into a republic. The monarchy in Liechtenstein has perhaps one advantage over other monarchies I know: all the expenses of the Reigning Prince are paid by himself and not by the state. Over the centuries, the Reigning Prince has also used part of his private income to support all kinds of projects in the Principality and sometimes even the state budget.

Are you concerned that the institution of the monarchy in Liechtenstein may eventually become obsolete?

It is always difficult to make long-term forecasts in a world which is changing rapidly. If I look into the past I can only say that this state would not exist if it had been a republic.

Despite its small size and limited natural resources, Liechtenstein has enjoyed remarkable economic success. How has this been achieved?

Since the Second World War the economic environment for small states has improved dramatically. Barriers against the free flow of goods, services and capital have been reduced or abolished. A small state without an internal market was suddenly able to build up an export industry and attract capital. Liechtenstein has no natural resources to offer, but it does have a well-educated workforce and a favourable business environment.

How important is the banking sector?

The banking sector is certainly important, and will become even more so as we are now opening it up to more foreign competition through our membership of the European Economic Area. However, I have to add that abroad the importance of the banking and tourism sectors is usually overestimated: don't forget that Liechtenstein is the most highly industrialised country in Europe and perhaps the world, and many more people work in industry than in banking and tourism combined. Nevertheless, we are a popular banking destination because of low taxation, a favourable and unbureaucratic environment to establish companies, political stability and a very competitive service industry. We continually try to improve our service and to keep our costs low. We want to keep this tax haven clean and dirty money out.

Is there concern that the principality's close links with Switzerland may leave it increasingly isolated in a Europe that is ever more united?

No. Despite our close links with Switzerland, we have become a member of the EEA, which was turned down by Switzerland. This gives us the economic integration with the rest of Europe which we need, without the full political integration of EU membership, which would probably be a disadvantage for such a small state as Liechtenstein.

Finally, where do you see Liechtenstein at the turn of the century?

I don't see many changes over the next few years. Liechtenstein is in a very advantageous position with its EEA membership and its close links with Switzerland. We have a very strong economy, with unemployment at around 1 per cent and the state budget in surplus. Through our membership of the UN and other international organisations we are connected with the world politically as well as economically. I am not so much concerned about the immediate future of Liechtenstein than about the future of the world. In the long term, we can only live in Liechtenstein in peace, freedom and prosperity if the rest of the world does so too.

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©Kensington Publications 1996