Size Doesn't Matter - The Financial Crisis Hits Liechtenstein

"We have been affected as all other countries.  we have, at the end of the day, very similar problems," said HSH Prince Alois of Liechtenstein, the country's de facto head of state. Contradicting widespread perceptions, the prince noted that Liechtenstein's economy is more dependent on manufacturing (39 percent of GDP) than finance (31 percent of GDP). In addition, the industrial sector accounts for a greater share of national employment.

"If you look at where we've been most hard hit, it was actually our industry," the prince noted. "In 2009 Liechtenstein's GDP dropped by 4.6 percent, and our exports dropped by more than a quarter," he added.

Liechtenstein also expects a 2010 budget deficit equal to 15 percent of GDP, exceeding even Greece's dismal forecast. But the principality has a cushion that others lack - significant reserves equal to 150 percent of the entire state budget.

The principality's finance sector, however, remains healthy, with none of its banks requiring a bailout despite a recent wave of scrutiny of Liechtenstein's financial-sector practices. "Luckily, [our banks] were all solid going into this crisis," the prince said. He added that banking reforms were introduced to meet expectations of greater transparency even before the issue exploded onto international headlines.
Liechtenstein now adheres to OECD standards for sharing tax-related information and has concluded an agreement with the United Kingdom to address tax evasion, a chronic irritant in relations with its European neighbors and the United States.

Prince Alois advocated a role for small states in global governance, noting that they make good testing grounds for policy experimentation. Policy successes, he suggested, could then be transferred to larger countries, where such experimentation is impractical.