* Pro-democracy campaigners keep low profile in emotional
* Referendum triggered by prince's veto threat over abortion
* Royals say will withdraw from politics if not supported
* Political stability critical for banking industry
By Emma Thomasson
VADUZ, June 11 It isn't easy being a campaigner
for more democracy in the tiny principality of Liechtenstein.
Everybody knows everybody in this arch-conservative state and
the subjects of the last monarchy in Europe with any real power
don't like rocking the boat.
Activists who want to end the monarchy's right to veto
popular referendums say they have received threatening letters
and seen far-right vandals deface campaign posters with Nazi
slogans like "Heil Fatherland" and "Democrats are the death of
Given the charged atmosphere in this state of just 36,000,
few dare to speak out against billionaire Prince Hans-Adam von
und zu Liechtenstein, whose family has ruled the 160-sq-km
(62-sq-mile) principality since 1699 and is credited with
turning a rural backwater into a wealthy banking centre.
But democracy campaigners still managed to gather just
enough signatures to call a referendum on the prince's veto
right - set for July 1 - by canvasing support in private and
assuring voters that their names would be kept secret.
"People are worried about being seen as against the prince,"
Sigvard Wohlwend, a communications consultant who is a spokesman
for the campaign, told Reuters in a cafe in the pedestrianised
main street of the sleepy capital Vaduz.
Wohlwend said most people don't want to reopen deep
divisions over the monarchy that were triggered by a
constitutional crisis in 2003.
"Today I argue with a politician and tomorrow I play
football with him and I'm probably also related to him somehow.
That's village life," said Wohlwend, who greeted several
passersby during the course of the interview.
An attempt to canvas support at his son's soccer match did
not go down well, he said.
While the prince has far-reaching executive powers beyond
the veto right, he rarely has to use them. All he needs to do to
strike fear into the hearts of his subjects is to threaten to
quit the country which carries his name, undermining stability
and affluence for all.
"God, Prince, Fatherland" bumper stickers are popular around
Vaduz and 1,200 opponents of the referendum had their names
printed in the national newspaper.
"If you speak to young and old it is clear for all that this
initiative will be rejected," said one senior banker, who
sported the gold crown lapel pin of the pro-Prince camp but did
not want his name used in this article.
"The princely house is a stabilising factor for our country
because it thinks for generations and not just for four years."
It's an argument that carries particular weight at a time
when the country's powerful financial industry is trying to sell
political stability as the main reason to bank in Liechtenstein
after it came under pressure to stop sheltering tax dodgers.
MOST POWERFUL MONARCH IN WEST
Wilfried Marxer, director of the Liechtenstein Institute - a
largely government-funded research body - said it was hard to
have a rational debate about the monarchy.
"It is a very controversial issue. The topic of the position
of the monarch in Liechtenstein is not so much rational as
emotional. People don't want conflict," he said. "If there is a
lack of consensus between the people it is difficult for a
society as small as Liechtenstein."
The July vote is only on the prince's right to veto the
results of popular referendums; he would retain the right to
veto decisions made by parliament.
The campaign was triggered last year after Crown Prince
Alois said he would block the legalisation of abortion in the
first 12 weeks of pregnancy if his people approved it in a
referendum, held in September after a years-long debate.
Alois has run day-to-day affairs in Europe's fourth smallest
state since Hans-Adam returned to managing his family's fabulous
wealth after winning a referendum to increase the monarchy's
powers with 64 percent of the vote in 2003.
In the end, the father of four, whose wife Sophie runs a
charity that supports women who have unwanted pregnancies, did
not have to resort to the veto because the proposal was rejected
by 52 percent of the largely Catholic population.
"Just by commenting, the prince can move 10 or 20 percent of
the population of Liechtenstein in one direction or the other.
By threatening his veto, he can avoid having to use it," said
"There is no other head of state who has these powers. He is
the most powerful monarch in the Western hemisphere - and will
remain the most powerful monarch after a 'Yes' in the popular
vote," he said.
Alois, 44, who lives in a fortified castle that clings to
steep forested slopes above Vaduz, has said his family would
withdraw from political life if it loses the vote.
"The princely house will not serve as a fig leaf for
policies it no longer supports," Alois said in a speech at the
opening of parliament in March. The prince declined to speak to
Reuters for this article.
Hans-Adam managed to head off an attempt to limit his
powers a decade ago with a similar threat, suggesting his family
could move to Vienna where their ancestors lived until 1938 if
their subjects no longer wanted them.
"There is a small group of politically ambitious individuals
for whom the monarchy has long been a thorn in the side. First
they want to weaken the monarchy and then completely abolish
it," Hans-Adam, 67, said in February.
"Unfortunately in the 20th century, there have been enough
examples of monarchies being removed by revolutions and replaced
by bloody dictators," he told the Liechtensteiner Vaterland
newspaper in his annual birthday interview.
BANKING BEHEMOTH UNDER PRESSURE
Vaduz is an odd mixture of modernity and tradition. The
quaint postcard shops and cafes that you would expect in any
small Alpine town are interspersed with boxy city office
buildings, the largest belonging to banks like LLB and LGT.
In a reminder of the not-too-distant past of this country
sandwiched in the Alps between Austria and Switzerland, visitors
can also still catch the smell of manure in the centre of Vaduz
and see the odd tractor chugging through the streets.
Gesturing up the hill to the 13th-century royal castle,
Wohlwend doubted Hans-Adam would ever really quit Vaduz.
"Why should he give up his enormous privileges?" he said.
"He can direct policies that benefit the princely family and its
interests. He pays no taxes. He saves millions of francs a year
in wealth taxes."
After the Liechtenstein royal family lost vast tracts of
land and castles in eastern Europe at the end of World War Two,
they reinvented their country as a tax haven, attracting
offshore companies and the savings of wealthy foreigners.
That helped LGT, owned by the royal family, become hugely
profitable, making the Liechtenstein monarchy the wealthiest in
Europe, worth 6-7 billion Swiss francs ($6.25-7.3 billion),
according to the 2011 rich list in the Swiss magazine Bilanz.
LGT, the country's biggest bank with 87 billion francs under
management, is run by Alois' brother Max and offers clients the
possibility to invest in a "Princely Portfolio", using the same
broad diversification strategy as the monarchy.
The family also owns several palaces and tracts of forest
and vineyards in Austria, as well as a valuable art collection.
The booming financial sector - the tiny nation has 17 banks
and 107 wealth management companies - also helped make
Liechtenstein's citizens among the world's wealthiest, with
national output per person seen over $141,000 in 2012.
The dominance of banking has pushed up property prices:
there were no houses for sale under 2 million francs in the
window of one Vaduz real estate agent, which also advertised a
villa near the princely castle for 5.5 million.
But the industry has been in crisis since 2008 when bank
data leaked by a former LGT employee revealed hundreds of rich
Germans had hidden assets in the country, forcing Liechtenstein
to promise to clamp down on tax dodgers from abroad.
The U.S. Department of Justice is also investigating the
second biggest bank LLB for allegedly helping rich
Americans to avoid paying tax, one of at least 11 banks - mostly
Swiss - targeted in the probe.
The Swiss and Liechtenstein governments are trying to get
the investigation dropped in return for the likely payment of
heavy fines and the transfer of thousands of client names. LLB
has said it is working with U.S. authorities to reach a
The tax issue, compounded by rocky markets and a rise in the
Swiss franc - Liechtenstein's official currency since 1924 -
slashed assets managed in the country from a 2007 peak of 153
billion francs to 109 billion at the end of 2011.
'LIECHTENSTEIN SPRING' UNLIKELY
As the tide of foreign money has turned, the government has
been forced to make unprecedented budget cuts, reinforcing
support for a stable status-quo.
"We have never had real revolutionary times. The prince is
seen as a protector rather than an exploiter," said Marxer of
the Liechtenstein Institute. "People see more advantages than
disadvantages from the princely house to risk it withdrawing
from politics or leaving the country."
In February, ratings agency Standard & Poor's confirmed its
'AAA' rating for Liechtenstein, saying "stable and conservative
policies have resulted in a strong history of managing political
and economic challenges which we expect to continue."
Prime Minister Klaus Tschuetscher, who went to school with
Prince Alois and meets him every couple of weeks to discuss
official business, said the veto dispute could be resolved by
limiting when the royals are allowed to speak out on key topics.
"The debate should be around when the princely house should
express itself on referendums. I personally believe it should be
after the people have expressed their will so that there is
really free volition," he told Reuters.
"The princely house is as integral to Liechtenstein as is
the Rhine which makes the border to Switzerland, and the Swiss
franc," he said.
"The people of Liechtenstein know what they get from the
princely house and the princely house knows what it gets from
Liechtenstein. It is such a symbiotic relationship that nobody
will give that up easily."