CNBC Interview with the Crown Prince of Liechtenstein
Following are excerpts from a CNBC interview with the Crown Prince of Liechtenstein and CNBC's Joumanna Bercetche.
JB: Liechtenstein is the definition of an open economy in the sense that trade is a very integral part of the economy, no tariffs applied. When you hear the likes of Donald Trump, President of the US saying he's going to pursue an America first policy, does that concern you? Perhaps the world is moving away from a globalisation model to a more inward model?
PA: It is a concern. Luckily, I would say up until now with few exceptions there hasn't been a strong move in this direction, yet. Most of the other countries raised the point that it shouldn't move in this protectionism. But we saw in the last few years elements of that. Not only coming from the US side where it was perhaps raised most loudly, but you could see in some from other countries. I think it's good that there's a lot talk that one has to be careful, one shouldn't go in this direction. I'm confident that we don't go too far there, but it is a concern for a small country like Liechtenstein. We are very dependent on open economies.
JB: Do you think that perhaps that some of the rules need to be rewritten though?
PA: I think it's worthwhile to look that the international rules are working in the sense of a level playing field. But I think it's important that they don't get rewritten in the sense of protectionism. I think that would be dangerous not only for the big countries but very much more for the smaller ones as well. In the example of Liechtenstein international trade, globalisation is not a zero-sum game where you have only one party that benefits and the other part not. If Liechtenstein was not able to not have this open trade, we couldn't have a sophisticated economy here. We have to import almost everything in order to be able to specialize in goods and services on those areas where we can do well and export them. And this way we can finance the imports. Otherwise, if our industrial companies and financial institutions only had Liechtenstein as a market, they would have to close down immediately and we would have to move back to subsistence farming.
For a country of the size of Liechtenstein that would mean a large part of the population would have to leave the country. So we are concerned but we hope that the international community will realize that it is actually beneficial to everyone that we have good free trade, free exchange between the countries and the level playing field. We hope that these developments will continue in the right direction.
JB: Speaking of trading arrangements, Liechtenstein is of course part of EEA, so when you heard results of Brexit referendum, were you concerned at all that this would have an impact on the people's Liechtenstein on whether they wanted to stay part of this programme as well?
PA: We are integrated into the European Economic Area, the common market, through our membership as countries together with Norway and Iceland on one side and the EU countries on the other side. So an exit of the UK out of the EU would mean an exit out of this common market, and we have together with our other two partners and EU countries have to see what kind of new regulation and new way to solve this free trade can be found.
JB: While doing the research I discovered the UK national anthem is rather similar to the Liechtenstein national anthem. I just wonder perhaps if the UK should adopt a similar trading model that Liechtenstein has adopted to the rest of the EU, what do you think?
PA: I think that there are some elements that might be beneficial to the UK. Obviously, the UK could consider joining EFTA again, and through EFTA membership, could be part of common market. However, if one looks at why the UK left the European Union, there are quite some elements that they would have to take on again, which mean they would again be subject to foreign judges, on the whole regulation, have to take on all EU regulation with exception of agriculture. So if you consider the reasons why they have left, I don't see why they would use the exact same ways of integration.
JB: Being as you just mentioned as part of the EEA, you are also subject to some of the EU rules and regulations. Has that ever hindered or stopped the progress of some forms of development in your view or has it actually benefited the country?
PA: It benefited. Such a small country, 38,000 people on 160 square kilometers, you are always closely integrated into your neighborhood. If you look back in history, that is always the case. You have to be prepared to take on regulations of your neighbors, the larger neighborhood, international regulation because otherwise you wouldn't be able to have these open markets, free trade. So the acceptance for that in a very small country is perhaps higher than in a bigger one where you think we have to be the one who determines exactly what regulations there are…Our approach is that we have to accept we are not the big one on the table who can determine the rules but we have to a large extent live with what the big ones come up with. We obviously have to try to bring up our ideas in this process. For us it's more important to see what types of niches are attractive for us in this international framework.
JB: So when you think of the state of Europe today, are you optimistic about the future?
PA: It looks better again particularly if you look at the economy of the EU. However, there's still a lot of homework to do. There are big building places if you want to call it like this. You have the whole immigration problem, not really solved yet. You still have quite some uncertainty about the future of the euro. Brexit is a big subject. As such there's a danger that if you have market turmoil. It's not so clear. We've had a number of periods of growth worldwide, not a very strong one, but numbers and stock markets are very high, you could see in the next 2-3 years a shift there and if something like this happens, Europe is not very prepared for that.
JB: Like the IMF there you have to fix the roof when the sun is shining.
PA: Exactly that's a problem. Generally, it's easiest to fix the roof in politics if the sun is not shining because it's easier to push through difficult reforms. There should be more done in Europe than is currently done.
JB: I'd like to switch gears and talk about wealth management. The Liechtenstein family wealth has been around since the 12th century, that's more than 800 years. I just wonder, how the royal family has managed to secure the wealth over such a long time and secure the assets, really.
PA: Obviously such a long history you have to be lucky as well. I think after having made first experience how difficult it is, we came up in the beginning of the 16thcentury and then again improved in 17thcentury with very clear statute of how we governed the family, how the wealth is kept together, managed, and that really helped to preserve it over the centuries. There are critical periods, large parts of family wealth was expropriated in the 15th century, then after the second world war, biggest part of the family wealth was in what is now the Czech Republic , was expropriated then after the war. So it was important that the family always had a diversified asset allocation if you would call it in modern terms. So that was one part and the other is that I think that you ensure if you train a next generation…
JB: Let's pick up on diversification point. A big portion is invested in art, vineyards, and the private bank as well. So can you give us an idea of the allocation to each one of those perhaps?
PA: I would say the biggest parts are very traditional elements, going back into the centuries, agriculture, farmland and timberland, still are an important part. We've moved into other agricultural areas such as the seed business. That's one traditional part and a traditional part is the also the real estate side. And the more let's say modern parts are the financial services industry which is nowadays an important part with a particular focus on private banking and asset management, both for private persons and institutional management. We also build up our own direct private equity investment vehicles where we have - I think unlike a normal private equity - a long-term orientation. We try to diversify and obviously to the traditional part belongs the art collection that we try to manage over the centuries.
JB: I noticed a Rubens painting in the room next door. Can you tell me a little bit about the art collection. Are you planning to acquire new art or is it based on legacy art, and if so, how was that acquired in the first place?
PA: Well let's begin on how it was acquired in the first place. Initially members of the family, the reigning prince would collect art or decorate the houses, palaces. After a certain time it was an element of representation, from that perspective, to invest in high quality works of art. And then I would say later on it became more something where you would collect on purpose. Some family members had a bit of competition of what you would collect. For example with Rubens we were in competition with the Habsburgs, and the Bavarian families. And then we had unfortunately after the Second World War had expropriation of arts. Most of it we managed to bring to Liechtenstein, but as the family assets had to be completely restructured for a certain time, we had to sell quite a lot of art. The last 20-30 years we were quite active on the markets to fill the gaps. Now we filled more or less most of the gaps, some of them we may never be able to fill. Now we are rather looking into diversifying into other asset classes.
JB: Would you think of diversifying into cryptocurrencies?
PA: It something particularly this new economy digital economy to look into more into the future. Currently we don't have the internal expertise to do that directly. We would rather do that currently through our general exposure through our private equity investing.
JB: But it's a technology that could be interesting in your view?
PA: It could be interesting. Particularly, the blockchain technology. Where the cryptocurrency will move to that's still open still.
JB: It moves quite a lot.
PA: So I think one has to see it as a very risky asset class, well if it is an asset class. Obviously, people are investing quite a lot. So, blockchain will change a lot of areas, lot of businesses in the future we can assume it will do, even on the stateside, I think it will make the state more efficient.
JB: Liechtenstein removed the banking secrecy model in 2009. So what have you done to continue to attract investment into the country?
PA: Luckily Liechtenstein was always a very stable country. Both from a political perspective and an economic perspective. We're not only a financial centre but we have for a small country a very diversified economy. We are among the highest industrialised country in the world. Almost 40% of people employed and of GDP are in manufacturing of goods, and that makes it very stable in this unstable environment. Particularly after international financial crisis, people like to look for safe locations, the sense of diversification of risk, both in asset classes and jurisdiction. That helped to position Liechtenstein again as a safe haven. That's one part. The other is that we continue to try to increase already high level of services, expertise where we benefit from also excellent universities in the neighborhood in Switzerland, south of Germany, small one in Liechtenstein. Then I think one of the benefits is that Liechtenstein offers at the same time as the only place in Europe direct access to the common market and to the Swiss market which is always important to the financial industry. In current discussion with regards to Brexit that's an important, attractive element. And the Swiss currency is a very important element of stability.
JB: Does it worry you that the Swiss currency has started appreciating so much?
PA: It was a problem particularly for our export industry, but it has now stabilized. The good thing is the improved economy in the EU, you could see the euro going up against the Swiss franc, but it is also an issue particular on the private banking side. You see clients like to come here but even though the Swiss currency is a currency of stability, they don't like to only invest Swiss denominated but have usually also still an exposure to euro, dollar. Income generated from private banking is therefore quite heavily euro influenced but the whole cost basis is Swiss franc. It is a difficulty for the export industry where it's more obvious but also the financial sector.
JB: I want to talk about the Monarchy now. Back in 2012 they held a referendum on whether the Monarchy's power should be reduced. That was defeated by 76%. So my question to you is what makes the Monarchy in Liechtenstein so successful, why are you so popular?
PA: I think it's our unique combination of having a parliamentary democracy with a strong monarchic element with a very strong element of direct democracy. You don't find that anywhere else. That ensures that the Monarch has to act in the interest of the people. The people in the Liechtenstein have the right of vote of non-confidence against reigning prince and through a popular vote abolish the Monarchy which ensures the reigning prince and myself always have really to make sure in all our decisions we have in focus the long-term interests of the people. On the other hand on the strong monarchic element you can bring stability, continuity, long-term orientation into politics. I don't have to be re-elected every four years, so it's much easier to focus on subjects that are perhaps not so popular, like pension reform and other areas that often in other countries politicians try to push to the next legislation
JB: You're not afraid of pushing through contentious legislation?
PA: Yes for instance that's why I went out first that we change our corporation on tax matters. Half a year before elections it was easier for me to make that subject.
JB: Queen Elizabeth didn't express any view on Brexit scenario when it was topic of conversation. When is it right when the Monarchy to get involved in important long-term political decisions and when is it better to not say anything at all as in the case of Queen Elizabeth?
PA: I think you have different systems of monarchies in various monarchies in Europe, and also worldwide. I think what might apply or be good for Liechtenstein might not be the right strategy for another monarchy. In Liechtenstein really my grandfather, my father and myself we tried to focus on subjects of great importance to the country, over the long-term, where we spent a lot of time looking in detail, discussing with experts, with the parties, with government, interest groups, citizens of the country, and tried to come up with a clear message. So it's more what perhaps a chairman in a company would do because we have also in Liechtenstein for the daily business a government, doing the operative part of government, so they are perhaps more comparable to CEO and top management. That has been the kind of division of labour, of tasks between Monarchy in Liechtenstein and the government, and obviously Parliament. We don't raise our voice too often. We leave many other areas of government and to parliament, but on those things where we have been very prepared and we think it's important to say something we do that. And that for instance if you want to look at her comparison to Brexit helped that Liechtenstein is now a part of the EEA and Switzerland isn't. My father at the time was a very strong advocate of that, and the role of the Monarchy was very important.
JB: But at the same time you also have the power to veto referendums. So doesn't that detract a little bit the power of democracy if the Monarchy can overrule or veto a referendum outcome.
PA:' Theoretically yes, the question is how you use it in practice. I think if you look back at the last 100 years it was used actually 2 or 3 times, the veto, and perhaps announced publicly that one was considering a veto another 2 or 3 times. It's important to think it through carefully and don't make it an everyday thing because then the danger is you go too far with that. So my grandfather, my father and myself we obviously signed a lot of laws that we thought we would have made different. It's important that you have this element and particularly in Liechtenstein because the element of direct democracy, works very strong and much faster than in Switzerland. In Switzerland it usually takes a long time from an initiative to a new law or are new constitutional article, it takes at least 2 years to finally come up, finally decide with a popular vote. In Liechtenstein that can be much faster, and there it's important to have the Monarchy also as a counterbalance no accident is happening. If you look back at the past at least one or two times where the Monarchy didn't sign, it was actually because people didn't want him to do that.
JB: Some of the critics of Monarchy today say that it's out of touch with the people. In your case you host an event every year where you invite all of the population of Liechtenstein to the castle, is that your way in staying in touch? What's your approach?
PA: I think once a year an event would not be enough. I think the advantage in Liechtenstein is that we're 38,000 inhabitants, it's much easier to stay in touch. I went to primary school like everyone else at the local school here, then later on. So with 38,000 you already know a certain amount of the population. I try to participate in many events in the country. There's always a possibility to interact with the people. I have open house in the sense that if someone in Liechtenstein wants to discuss something with me, has some concerns about something, they can always organise a meeting that's something that's possible in Liechtenstein. It's impossible for a big monarchy, for a monarchy in a big country. That allows me to be close to the people. And additionally I try to have a lot of meetings with government, parties, interest groups, business associations, with others as well.
JB: It's almost a form of analogue social media. You're meeting people in person, rather than sending out tweets or something along those lines…
PA: Yes, you're right. I haven't switched yet on tweets. I obviously use sometimes email but I prefer to have the direct dialogue and that's possible, luckily, in Liechtenstein.
JB: How often do you see other royals in Europe?
PA: You meet on a regular basis, usually on celebrations, anniversaries, weddings, unfortunately sometimes funerals. Usually 2-3 occasions each year where a lot of the other European monarchs or their representatives will meet…
JB: Speaking of weddings, are we going to see you at Prince Harry's wedding this year?
PA: That I don't know yet.
JB: Is there any advice you would give Megan Markle, the future wife of Prince Harry entering into the royal family?
PA: I…can't…I think it's so different.
JB: Thank you so much for sitting down with CNBC today, it's been wonderful talking with you.
PA: Thank you very much. It was very nice to have you here.
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