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G - 108 : Monaco - The Rock of Crystal

Updated: Mar 27, 2023

View over Monaco. In front is Monte Carlo, at the back The Rock and Port Hercule

In Jimmy’z, Monaco’s glamorous and famous night club, a bottle of Crystal champagne costs EUR 1’000.- The preferred beverage for the want-to-bees is pricey. It is a perfect illustration though how a poor townlet on a rock morphed into glitter and fame.

Monaco on the Rock in 1890 - the area is still mostly undeveloped

Founded in the 6th century BC by Greeks from Massalia (Marseille), Monoikos had a good first 1’000 years. The major trade route from Western Europe to Rome passed by. Monoikos’ deep water port, the Portus Herculaneus, was perfect for sheltering when the Mistral blew and whipped up the sea. The vessels were loaded with furs from Gaulle, amber from the North Sea, grain from Toulouse and wine & olive oil from the South of France. The rock was easy to defend and the beach below large and shallow. One could simply pull the boats on the beach. Sitting out a storm in Monaco was always a good idea.

The German Cartographer Merian put Monaco and Nice on the same map. (17th Cent.)

With the end of the Roman Empire in 476 AD, the more than 1’000-year-old trade route disappeared. No ships were coming any longer. Monaco became a fortified small townlet living from fishing. People were scratching a meager existence from the surrounding sea. Life had become tough. It did not take long and the area became depopulated. There were so few people left in Monaco that they could not defend their town against the Muslim raids that devastated the Ligurian coast. Peace returned when Genoa and Pisa defeated the Fatimid fleet in 1087. But prosperity eluded the few who stayed on the rock.

Map of the Grimaldi Fortress in 1746 - it was tiny

In the 13th century, Monaco came under the control of the Genovese Grimaldi Family who still runs it today. It was a Genovese protectorate but neither rich nor important enough for Genoa to bother. In the many wars between Spain and France in the 17th and 18th century it changed hands frequently - even though it was well fortified. In 1793, French revolutionaries overrun it. Monaco became part of France. 9 years later Napoleon would also annex Genoa. The Prince’s treasure was brought to Paris, his step daughter put to the guillotine. Life on the rock had become even more miserable.

Monaco in the 1870s. The new Railway Station in the Foreground

Europe’s big powers reconstituted the Principality of Monaco in 1815 at the Congress of Vienna. It was put under the protection of the Kings of Piedmont. It probably would have stayed this way. But Piedmont enlisted the support of Napoleon III to unify Italy. Napoleon was rewarded with the Duchy of Savoy and the County of Nice. Had England not cast its veto, Monaco would probably have been added. The British Lion was always on the look-out for deep-water ports for the Royal Navy. Monaco "only" had to cede Merton and Roquebrune to France.

Merlon and Roquebrune had already separated from

Monaco in 1848. In 1860, they were annexed by France

With nothing to tax and no money for his army, the Princes of Monaco looked for revenues. With only 2 square kilometers, Monaco was the world’s smallest state after the Vatican. Prince Charles III, a “modest” man who named Monaco’s eastern part after himself (Monte Carlo), noticed that gambling was illegal in both France and Italy. With his outsized, big confidence, he opened a casino in 1863.

Coupiers from Monaco's Casino looking for Customers (1864)

Surely, the rich and famous would come. Francois Blanc, a man who already operated a successful casino in Baden-Baden, was given a license. He set up the Société des Bains de Mer et du Cercle Étrangers, which is state owned to this day. But at first, visitors remained elusive. The first five years were a challenge for the new casino.

The Royals of the 19th Century travelled in Style with their own Yachts - here in Monaco

Luckily, Napoleon planed to link his Second Empire to his new Italian Ally. A railway was to be built from Nice to Genoa – not for tourists but for transporting French soldiers. By 1868, Monaco got its own train station. It was now only half an hour from Nice. Finally, the rich and famous came. The Hotel de Paris was the in-place to stay. The casino full. Who could afford it, stayed for the entire winter season. Soon, members of Europe’s Royal Families followed with their yachts. The place became so popular that additional luxury hotels had to open. A new chapter in the history of Monaco began.

The famous Hotel de Paris opened in 1862 is still in Business - here around 1890

Charles III business idea was more successful than he had imagined. In 1869, he was able to abolish the personal income tax for residents of Monaco. The Casino revenue proved sufficient for paying all expenditures. His successors though became a little greedy. They kept too much of the casino revenue for themselves - just look at the luxurious palace they built – and neglected the Monegasque people.

Even in 1943, Monaco was less than half the Size of today

Not surprisingly, they rebelled. In 1910, hundreds of Monegasques stormed the Royal Palace – the Princes had underinvested in security and could not defend their palace - and obtained parliamentary representation. It was the end of Monaco’s absolute monarchy. But Charles III legacy remains. Until today, no resident (except French) pays personal income tax. Revenue from sales tax (VAT), corporate tax and fees on legal transactions fully cover the Principality’s budget.

The Number of Residents dropped sharply in 1918 and 1938

Until summer 1914 everything looked rosy. Monaco seemed to be on a path of eternal growth. But then disaster struck. Within days, 40 years of peace turned into the bloodshed of the First World War. From 1914 to 1950, the Principality suffered. WWI was followed by the big depression and then WWII. The Second World War did even more damage. For 35 years, hotel guests stayed away. Every single hotel went broke. In the absence of visitors, casino income dropped sharply. Despite being neutral, Monaco was occupied first by Italy in 1942, then by the German Wehrmacht one year later. It was liberated in August 1944. The destruction of Europe in the six years from 1939 – 1945 had impoverished everybody. Until the 1950s, nobody could even think of a holiday.

The small Nice Airport got its second Run Way in 1975

Eventually, the European reconstruction under the Marshall Plan saved Monaco. The economy reached pre-war levels. Consumer products from America became the rage. Everybody wanted a fridge, a washing machine, a car and an own home. Train links were rebuilt. The first high ways constructed. But European states and the US were stuck with high tax rates until the 1960s. The marginal tax rate for the top bracket in 1947 was for the UK 98%, Germany 90% and France 72%. War debt had to be repaid and the destroyed infrastructure to be rebuild. In this high tax environment, Monaco became increasingly attractive. More and more wealthy people, specifically from France, moved to Monaco to avoid being taxed to the tilt. Soon British and German nationals followed.

Prince Rainer III from Monaco and Princess Grace on their Wedding Day in April 1956

The world's media however was busy with another event. Prince Rainer III from Monaco, the latest ruler of the Grimaldi family that dates back to 1297, planned to marry Grace Kelly, the American movie star. The wedding was an international media event and firmly put Monaco on the map. The principality added glamour to its status as tax heaven. The French government though was not amused. The flight of its wealthy citizens had to be stopped.

The famous Blockade by De Gaulle in 1962 caused miles-long Traffic Jams around Monaco

Under the cover of the Cuban crisis, General De Gaulle embargoed Monaco. He wanted to end Monaco’s zero tax system. In 1962 custom officers blocked the roads to Monaco and created havoc. The French President secretly threatened to send in his tanks if his demands were rejected. The reigning Prince, Rainer III, had to bow to the ultimatum. His celebrity status did not help. French residents who arrived after 1959 were from now on subject to French taxation. So much about respecting sovereignty. It did not disturb de Gaulle that other nationals still could avoid taxation. That was other nations’ problem. Not his.

Tensions are already visible on this photo from 1960 taken during De Gaulle's State Visit - the Parties look a bit somber (Rainer III, De Gaulle, Mme De Gaulle, Princess Grace)

Monaco found a new business model – no taxation for the wealthy - and again attracted the rich and famous. The casino still paid dividends but its contribution became insignificant. The large number of new residents paid the bills with every apartment they bought and every corporation and trust they set up. The inflow of so much money triggered the big construction boom that still continues. As the connections to the South of France improved, Monaco became even more attractive. Under European and UK tax rules, people are allowed to work up to 90 days in their jurisdiction before becoming subject to tax. That 90-day rule is the base for the wealthy residents of Monaco. Now working from home helps. Having a modern airport in Nice, just twenty minutes away, was another advantage. The number of foreign residents continues to grow. So does Monaco's GDP.

Nice Airport is less than 30 Minutes from Monaco

No wonder that a bottle of Crystal costs EUR 1’000.- at Jimmy’z. It is a seller’s market. People who come to live in Monaco are not very price sensitive – the zeros in their bank account exceeds the space we have on our mobile banking application. The Principality’s business model will remain successful until one day the EU decides, “time has come to change the rules”. Europe does not have tanks as De Gaulle did – as least not yet. But several European leaders dream about a EU Defense Force. To be continued ...

Monaco today - busy, buzzing, wealthy

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