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In 2004, Prince Hans-Adam II handed over power to his son, Crown Prince Alois. Both refrained during the year from abusing the wide latitude to which they were entitled by a 2003 constitutional reform, which strengthened the monarch's powers considerably.
Liechtenstein was established in its present form in 1719 after being purchased by Austria's Liechtenstein family. Native residents of the state are primarily descendants of the Germanic Alemanni tribe, and the local language is a German dialect. From 1938 to 1997, the principality was governed by a coalition of the Progressive Citizens' Party (FBP) and the Fatherland Union (VU, now the Patriotic Union). The FBP was the senior coalition partner for most of this period. Otmar Hasler of the FBP became leader of his party and prime minister after the FBP won a majority of seats in parliament in February 2001 elections.
In 2000, the Organization for Economic Co-operation and Development's Financial Action Task Force labeled the principality "noncooperative" on money laundering because of Liechtenstein's traditional banking secrecy laws. Under pressure, Liechtenstein passed a law ending anonymity for account holders. It was removed from the list of noncooperative states in June 2001, but after the terrorist attacks in the United States on September 11, 2001, concerns reemerged that Islamic terrorists could be laundering money there. The IMF reported in September 2003 that Liechtenstein had made progress updating its banking regulations, but worried that there might not be enough staff to enforce regulations fully.
An amendment legislating major constitutional reform was passed by referendum in March 2003, with just over 64 percent of voters approving. It concentrated a good deal more power in the hands of the monarch, currently Prince Hans-Adam II. The prince had threatened to leave Liechtenstein for Austria if the measure were not passed.
The amendment, which makes Liechtenstein's monarchy the most powerful in Europe, gives the prince the power to dismiss the government, veto legislation, and appoint judges. However, it removes the prince's right to rule by emergency decree. The Council of Europe, which monitors democracy among its member countries, expressed concern and considered placing the democratic standards of Liechtenstein's political system under formal monitoring. It decided against doing so, instead merely entering into formal dialogue with Liechtenstein's parliament.
On August 15, 2004, Prince Hans-Adam handed his constitutional powers to his son, Crown Prince Alois, though Hans-Adam retained his title as head of state. Alois, 36, studied at Britain's Royal Military Academy at Sandhurst and has training in law and accountancy (the latter is especially important, as his country is a major financial center). He is expected to be somewhat less confrontational with Leichtenstein's other political institutions than his father.
The people of Liechtenstein can change their government democratically, but the unelected monarchy won greater powers in 2003; Leichtenstein's ruling family is now perhaps the most politically powerful in Europe. The legislature consists of 25 deputies chosen in fair elections carried out under proportional representation every four years. These freely elected representatives determine the policies of the government, but the monarch, currently Crown Prince Alois, now has the power to veto legislation, dismiss the government, and appoint judges.
Political parties are able to freely organize. While two parties have dominated Liechtenstein's politics over the last half-century, there are a few independents in the legislature. Switzerland and Austria, the two countries that surround Liechtenstein, have a good measure of influence on the tiny principality.
Liechtenstein's politics and society are largely free of corruption; however, concerns about abetting the corruption of others continue, as Liechtenstein works to build sufficient capacity to fight money-laundering in its banking system.
The constitution guarantees freedom of expression and of the media. There is one private television station competing with the state broadcaster, and the only radio station is in private hands. The two daily newspapers are aligned roughly with the two major political parties. Austria's and Switzerland's broadcasts are available and popular in the country, as are foreign newspapers and magazines. Internet access is unfettered.
The constitution establishes Roman Catholicism as the state religion but protects freedom of belief. Catholic or Protestant religious education is mandatory, but exceptions are routinely granted. All religious groups are tax-exempt. The government respects academic freedom.
The right of association is protected, and the principality has one small trade union. The right to assembly and demonstration is not infringed.
Judges are appointed by the prince. Due process is respected, and conditions in prisons are acceptable. After the controversy over the monarch's new powers, the Council of Europe's secretary-general sought to reassure those concerned about democracy that "Liechtenstein's status as a law-based state is unarguable." The IMF rated the financial-services regulators, important to a country so reliant on banking, as capable but too few to police all banks and account holders fully. Crime is rare and the police are professional. Switzerland is responsible for Liechtenstein's defense.
Liechtenstein is a member of the European Economic Area, a free-trade area of countries that are not members of the European Union. Liechtenstein's currency is the Swiss franc. Living standards are high, with a large number of small businesses and a strong financial sector.
A restrictive abortion law allows the procedure only when the life or health (including mental health) of the woman is threatened. A 2003 court decision upheld the principle of equal pay for equal work for women, but Liechtenstein's society remains socially conservative, and practice lags behind principle.