The Casino at Monte Carlo was still firm on its foundations; the roulette wheels were running true. Princess Grace's promised return to Hollywood quickened the hearts of her countrymen. The sun bathed a harbor filled with yachts. Nevertheless, gloom last week hung over the tiny, 370-acre principality of Monaco. Reason: income taxes.
Ever since Monaco's Prince Charles III ruled in 1869 that the principality's wheels of chance were producing enough cash to run his government and to keep his people in artichokes, Monégasques have been free of the responsibility of taxes. But with the revival of big-time gambling in neighboring France after World War II, Monaco's Casino profits suffered. Prince Rainier III solved the problem by encouraging individual corporations to set up headquarters in the Monégasque tax haven. They responded with alacrity; since 1959, Monaco's business volume has doubled to $200 million annually, and the number of corporations based there has climbed to 542.
The business boom arched eyebrows in France. Monaco's independence is in fact dependent on French tolerance. Under the terms of a 1951 good neighbor agreement with France, Monaco uses French electricity, French money, the French railway, and the French telephone system, sends its goods into France duty free. To quiet the screams of French businessmen who claimed that vast new imports of duty free Monégasque products were cutting into their domestic markets, France suggested that Rainier modify Monaco's tax privileges. Rainier refused, huffing "Neither I nor the Monégasque people can or will accept these demands. They mean the end of our liberties.''
But Charles de Gaulle is not a man easily defied. Last week France gave notice that it would end its privileged economic ties with Monaco unless the pocket principality agreed to a tax revision. France indicated that if Monaco refused, it would be treated just like any other foreign power; there were those who feared that De Gaulle might even turn off its electric lights and telephones.