1. Liechtenstein‘s ongoing economic success

2. Liechtenstein‘s ongoing economic success
1. Basic facts
2. Historical background
3. Long lasting economic weakness
4. Economic improvement
5. Ongoing success
6. Conclusion

3. 1. Basic facts Situated between Switzerland and Austria 160 km2
Population about 35,000
Liechtenstein, ensconced between Switzerland to the West and Austria
to the East, only covers 160 square kilometres and has a population of
about 34,000 inhabitants

4. 1. Basic facts

5. 1. Basic facts
The common perception of Liechtensteins economy is that of a financial center…

6. 1. Basic facts Highly developped industry needs markets, e.g.:
Hilcona: leading in fresh convenience food
HILTI leading in building technology
Unaxis Balzers AG leading in information and vacuumtechnology
Thyssen Krupp Presta leading in the production of steering systems and camshafts
Ivoclar Vivadent worldwide third largest producer of artificial teeth and respective technology
There is, however, a strongly diversified industry (building-tools; dental technology; vacuum-technology; food etc.),

7. 1. Basic facts
While financial services contributed 24% to the GNP, industry contributed 42% leaving 27% for general services and 7% for agriculture and households (2003).

8. 2. Historical background
Part of the Holy Roman Empire
Since about 500 part of the episcopate of Chur (see map)
Since about 1400 Habsburg territories to the east and Swiss controlled territories to the west

9. 2. Historical background
Part of Roman province Raetia Prima
Part of rhaetic dominions
County of Vaduz established 1342; imperial feod
Counts of Werdenberg; Brandis; Sulz; Hohenems
Economic crisis; „witchhunt“; indebtedness
Vaduz and Schellenberg fall back to Empire

10. 2. Historical background
1699: Schellenberg bought by Prince Johann Adam I of Liechtenstein
1712 Vaduz bought as well
1719 Unification of Vaduz and Schellenberg by Imperial Order under the name „Principality of Liechtenstein“

11. 2. Historical background
The possession of Liechtenstein gave Princes „sovereignty“ and right to sit and vote in Imperial Diet (Reichstag)
Princes kept residence in Vienna and main territories in Austria, Bohemia and Moravia

12. 2. Historical background
1806: Dissolution of the Holy Roman Empire
Liechtenstein sovereign in modern terms
Part of Rhine-Confederation established by Napoleon
Structure of state (administration, law etc. mostly Austrian)

13. 2. Historical background
1848: Liberal Revolution with little effect on Liechtenstein
1865 Constitution: Parliament; princely Governor
1866: Austro-Prussian war; Austria not part of new Germany; neither Liechtenstein
Neutral during WW I
1921 New constitution: Liechtenstein Government; constitutional monarchy; Constitutional Court
1938 Princely Residence moved to Vaduz

14. 3. Long lasting economic weakness
Equal situation as in most rural societies of the time;
Important emigration (mainly to the U.S.)
„Pre-napoleonic“ situation extended way into 19th century
No presence of governmental power in Liechtenstein: lack of economic interest
Economic improvement mid-19th century

15. 3. Long lasting economic weakness
Frequent natural catastrophies as floods of the Rhine and avalanches
No urban society
Society not exposed to „modern“ ideas or changes, e.g. protestantism
No development of commercial position or early industry

16. 4. Economic improvement Customs Treaty with Austria
Treaty on Residence with Switzerland
Access to Austro-Hungarian market
Attraction of Swiss textile industry to produce for Austro-Hungarian market
Modest wealth of population
First commercial enterprises
1861: State Bank („Landesbank“)

17. 4. Economic improvement Foundations for improvement laid:
Since 1919: de facto use of Swiss currency
1921: New Constitution
1923: Customs Treaty with Switzerland; postal Treaty; new Tax Law; CHF legal tender
1926: New Persons- and Companies Act
First private banks and trust companies
Partly Swiss law introduced

18. 4. Economic improvement
First genuine Liechtenstein Enterprises: mechanical industry; increased production during WW II
Difficulties
1927: Political crisis
1929: Economic crisis
1938: Threat of being annexed by Germany
1939: Outbreak of WW II (Liechtenstein neutral)

19. 5. Ongoing success
Financial and political stability in „Switzerland‘s shadow“
Steep increase in financial business and industrial production
Increase of population and wealth

20. 5. Ongoing success
Industrial production and financial services producing for Swiss market and beyond through Customs Treaty and inclusion into Swiss Free Trade Agreements
Liechtenstein (Vaduz) gradually becoming regional center

21. 5. Ongoing success
Increased need for foreign work force (29000 work places)
Cross border workers increasing to daily
People commuting from Switzerland, Austria and Germany
EuRegio „Bodensee“ (Lake of Constance)

22. 5. Ongoing success
Increased economic success and rise of wealth calls for international cooperation
Industry in need of free access to larger market
1981: Treaty with Switzerland on use of Swiss Currency

23. 5. Ongoing success Membership 1975 OSCE 1978 CoE 1990 UN 1991 EFTA
1992 / 1995: EEA
1995: WTO

24. 5.Ongoing success: The new Inter- nal Market
This is the picture of Europe as it has integrated politically until today:
The European Union of the 25 (yellow);
The EEA-EFTA States (Iceland, Liechtenstein and Norway – orange);
The EU candidates: Romania, Bulgaria, Turkey and Croatia (brownish) and
Switzerland with its bilateral agreements (green).

25. 6. Conclusion Internal factors for economic success:
Geographic situation
Political power interested in economic success
Political stability and direct democracy
Lean and efficient structure of state and administration
Financial stability (strong currency)
Liberal tax system and nearly no subsidies
Reliable legal system
Yes and No  Switzerland
Yes  Sovereignty
Yes  Mainly economical factors, but cohesion etc.

26. 6. Conclusion External factors: Size of territory lost relevance
Sovereignty seen less absolute
Membership in international organisations
Partly delegation of sovereignty: European integration
Free access to large market
Attraction as regional economic stronghold
Availability of workforce

27. 6. Conclusion
Future?
EU-Membership?

28. Thank you! Georges Baur Deputy Head of Mission
Mission of Liechtenstein to the EU
1, place du Congrès
BE-1000 Brussels
Captatio benevolentiae
(„BSE“)

29. … and do come and see for yourself!