In Liechtenstein, the Rhine River, Europe's mightiest waterway, is just a swift alpine stream. Above the spotless streets of the capital, Vaduz, looms Vaduz Castle, and above that nothing but snow-capped peaks. It is hard to imagine this idyllic mountain principality with 35,000 citizens as the heart of Europe's axis of evil. Yet secret agents, investigators and a growing chorus of politicians in Germany, the U.S., the U.K. and even Australia are convinced that this tiny enclave is up to no good. German lawmakers have barraged Liechtenstein with such epithets as "rogue state" and "den of thieves," and the German Finance Minister has wondered aloud whether "it's time to tighten the thumbscrews."
Rancor like that suggests money is at stake, and of course, it is. Berlin is keen to claim an estimated $6 billion in unpaid taxes on funds that German citizens are thought to have spirited away to Liechtenstein, beyond the reach of Germany's tax authorities but not, it turns out, of its spies. Germany's Federal Intelligence Service, the BND, paid as much as $7 million to a former employee of a trust controlled by the LGT Group, a bank owned by the principality's royal family. In return, the BND received stolen computer discs containing names of people with funds in Liechtenstein. The U.S. and U.K. have made their own deals, and Germany has offered its information to other interested governments.
This activity is not going down at all well in Liechtenstein, a country so small you would drive past it if you missed the highway exit. Its people feel bullied. "It's just like the Germans," seethes Sandra Tinner, a 39-year-old storekeeper in the village of Triesenberg, just above Vaduz. "They ought to put their own house in order before they start attacking others." Crown Prince Alois, Liechtenstein's acting head of state, has himself denounced Germany's "unprovoked attack" on his country.
For most of its history, Liechtenstein was far from rich. In 1868, it had to disband its 80-man army to cut costs. "Maybe it was so easy for us to keep our independence because we were so poor that nobody wanted us," says Josef Beck, head of the Chamber of Commerce and Industry. He says prosperity has come to the principality only over the last 20 or 30 years, and it "has a lot to do with the banks."
In 1995, the nation's banks managed assets of around $52 billion; by 2006 that figure had surged to more than $150 billion. Clearly there aren't enough Liechtensteiners to pile up that much cash. No wonder the principality has always rebuffed Berlin's demands for the names of German citizens with accounts there. Without the protection offered by its banking-secrecy provisions, Liechtenstein's financial-services boom would quickly die. Hans-Martin Uehlinger, a spokesman for LGT Group, is uttering Liechtenstein gospel when he says, "Paying taxes is the responsibility of the customer, not the bank."
And so tiny Liechtenstein, bracing itself for its finest hour, is standing firm even as Germany threatens to stop the country from joining Europe's passport-free zone. "We will not cave in to German pressure. We will not disclose information about the owners of bank accounts," says government spokeswoman Gerlinde Manz-Christ. "The rogues are the ones who are evading their taxes, and that's not the people here in Liechtenstein," says Wendelin Schrädler, a rosy-cheeked butcher, as he hacks off a side of ham for a customer.
In Liechtenstein, the enemy is clear. When German Chancellor Angela Merkel joined the debate recently, the local newspaper, Liechtensteiner Vaterland, said she was "using Liechtenstein like a whetstone to sharpen her claws." Günther Fritz, Vaterland's editor-in-chief, says, "We're not a very patriotic people, but under pressure from Germany, everyone is banding together." Bankgeheimnis bank secrecy may not stir the human soul the way liberté, egalité, fraternité does, but it seems to work in Liechtenstein.