After Prince Rainier dissolved Parliament in 1959, developments in Monaco followed each other in rapid succession. Many new businesses came to the Principality and the number of tower blocks in the skyline also increased very quickly. All these activities attracted even more people and companies that settled in the Principality.
The presence of Martin Dale and American investors began to worry Paris. France was still Monaco’s protector, but irritations were growing over what Prince Rainier and his advisers were up to. This was mainly due to the numerous ‘letterbox companies’, that were French but settled in Monaco because of the tax advantages. In addition, many Frenchmen, who had served in Algeria – the so-called ‘pieds noirs’ – sought refuge in Monaco after the Algerian War of Independence to enjoy their retirement without fiscal worries.
The French Minister of Finance, and later president, Valéry Giscard d’Estaing had called up some well-known millionaires, who lived officially in Monaco, during a TV programme to expose them as tax evaders. None of them answered the phone. “You should not be surprised because all these people supposedly live in Monaco but live in Paris, because I often meet them there on the Champs-Elysées,” the Minister explained pontifically on French television.
There was even more irritation in Paris because Monaco had its own radio station, Radio Monte Carlo, which was a commercial station. This was forbidden in France, but RMC became very popular. The French government preferred to restrict this station because it was a clear competitor for the French public broadcasters. To continue broadcasting in France, Monaco needed permission from the French Government and in return, France demanded a majority share in the company, to control the content of the broadcasts. Rainier was annoyed by this French interference and considered the French wish an infringement on the independence of the radio station and indirectly of his country.
The French-appointed Minister of State, Emile Pelletier, asked Prince Rainier to reconsider his position on the matter, but the Prince remained steadfast and dismissed his Minister after a fierce altercation on the night of January 23, 1962. One could speak of an immediate dismissal, but since the Minister of State was appointed by France, he could only be dismissed by the French Government. So, there was a constitutional crisis.
Pelletier was forcibly expelled from the Palace. The next morning, he immediately reported to the Elysée for a summit meeting with President de Gaulle and Prime Minister Debré. There were fears that Prince Rainier was far too influenced by Americans and cared little about France. It was even briefly considered to invade or isolate Monaco via a naval blockade. The crisis lasted for a few weeks, but eventually Prince Rainier had to apologise to the French Government himself under great pressure. This marked the beginning of negotiations between the two countries because RMC was certainly not the only reason for discontent in Paris. The tax system used by many French entrepreneurs and especially pensioners from Algeria was also under discussion. France demanded that Monaco adapt its tax system to French rules.
But the negotiations on this were so slow that on October 12 the French ran out of patience. It was decided to blockade Monaco. By order of Minister Giscard d’Estaing, the borders between France and Monaco at Cap d’Ail and Roquebrune were closed after negotiations between the two delegations had failed for the umpteenth time.
That evening there was severe weather between the Dog’s Head and the Rock and suddenly a customs post was installed on the border. Within a few minutes, long traffic jams formed on both sides of the border. Even Prince Rainier III got stuck in traffic because he had just returned from the aborted meeting in Paris. He had not considered such a scenario. He saw it as a pure provocation by France.
Monaco took measures quickly because the crisis was serious. The inhabitants of Monaco were afraid that their country would be cut off from water, gas, and light. Prince Rainier addressed his people within a day via a spoken message on RMC: “The French Government wants to impose a tax system on us that we cannot accept. In our view, this is an unjustified way of tackling tax fraud and tax evasion. That is why the French government has ceased negotiations and decided on these measures.”
The border posts remained operational for a few weeks, until Prince Rainier showed that his Government was willing to continue negotiations with President de Gaulle. “At the time, I felt like an insecure schoolboy. He acted like a teacher and accepted the apology for my misconduct,” Rainier would later recount of the meeting. De Gaulle wanted to sit down with Rainier to reach a new tax agreement. The so-called letterbox companies had to end and the ‘pieds noirs’ had to pay taxes in France. Prince Rainier refused to talk about introducing the French tax system but made a remarkable counteroffer. The French government agreed to this after renegotiation.
On May 18, the two countries signed a treaty, promising Monaco that it would tax the profits of the companies that did more than a quarter of their business outside the Principality. In addition, all French nationals who had settled in Monaco from 13 October 1957 were subject to French tax rules. A transitional arrangement was made for every Frenchman who had come to Monaco from abroad between 1957 and 1962. This rule applied especially to the French from Algeria. They would not be subject to French tax rules until 1965 and were given two tax-free years as compensation for this change in the law.
But the treaty also brought about another change. France agreed to an arrangement whereby Monaco refunded part of the tax paid by French people living in the Principality. In return, France agreed to return all taxes on French workers in Monaco to the Monegasque State Treasury. France had also to refund VAT revenue on Monegasque products. There was much to be said about this so-called ‘compte de passage’ later. France continued to guarantee Monaco a military defence and retained the right to appoint the Minister of State plus the head of the Monegasque courts and of the police. In addition, Monegasques were not eligible for some positions within the Monegasque Government.
Meanwhile, Rainier also needed the support of his people after the French blockade. To win over the Monegasques, he decided to establish a new Parliament by means of a new Constitution two months after France had temporarily closed its borders, on 17 December 1962. “Monaco is a sovereign and independent country, in which the principles of human rights and the special conventions of France apply. Monaco is a constitutional monarchy with fundamental rights of freedom and equality,” read the first sentence in the new Constitution.
There were a few notable changes. The Catholic faith became a State religion, women were given the right to vote, the death penalty was abolished and the judiciary became independent. The new Constitution reduced the power of the ruling Monarch, for he should cooperate with a Council of Ministers headed by a Minister of State, appointed by France, and this Government would be controlled by the National Council, which consisted of eighteen members elected by the Monegasques.
PHOTO: The blocked borders in 1962