“Micro-states: Wealthy but vulnerable” Dr Archie W. Simpson

Overview Definitions Numbers and European micro-states Characteristics Vulnerabilities Economic strategies Offshore financial centres

Definitions Sovereign state with a population of 1 million or less. “The concept of micro-state is applied to states that have one million inhabitants or less. This is the usual method for defining micro-states” (Anckar,2003, p.380). - Armstrong and Read (2000; 2002; 2003) - Plischke (1977) - Mohamed (2002)

Numbers The UN has 192 member states, 43 are micro-states. Since 1989, the UN has admitted 33 new members including micro-states and Switzerland. The EU has 27 member states, 3 are micro-states. The UN lists 15 non-self governing territories including Falklands, Gibraltar, Guam, and Bermuda. Other small territories include Faroe Islands, Greenland, Isle of Man, Channel Islands, and Northern Cyprus.

European micro-states Origins Population (est. July 2008) Andorra 1278 82,000 Cyprus 1960 792,604 Iceland 1944 304,367 Liechtenstein 1719 34,498 Luxembourg 963 486,006 Malta 1964 403,532 Monaco 1297 32,796 Montenegro 2006 678,177 San Marino 301 29,973 Vatican City 1929 500-1000 Sources: CIA; BBC

Characteristics Small territories thus fewer natural resources. Small populations. Little political power or influence globally. Militarily weak. Most have no armies whatsoever. Many have anachronistic political institutions. Most are former colonies except in Europe. UN members. Once decolonised, most states join UN.

Vulnerabilities Fewer natural resources due to less territory. Smaller population means smaller domestic market and working population. External factors have larger impact. Highly open economy is more vulnerable to global economic trends. Militarily weak. Lack diplomatic means globally. Rely on other states to represent them. UN membership required to extend diplomatic capabilities.

Economic strategies Need to specialise economically in 1-2 sectors. Maximise resources including human resources. Tourism. Currency issues. Participation in currency of others Need to have access to wider markets. Diversify economy as much as possible. Less financial regulations to attract investment. Offshore financial centres.

Offshore financial centres No agreed international definition but, Provides financial services to non-residents High level of secrecy in banking Low tax levels OECD Financial Action Task Force (FATF) Annual list of states not co-operating; Liechtenstein and Monaco usually listed. Dispute between Germany and Liechtenstein

Indicators of wealth? Various facts and figures Andorra: 10 million visitors each year buying many goods Cyprus: Has a GDP per capita higher than 24 other European states Iceland: IMF, CIA and World Bank list in top 10 GDP per capita Liechtenstein: Richest Royal Family in Europe, worth £5 billion Luxembourg: IMF lists as having highest GDP per capita in world Malta: Has a GDP per capita higher than 19 other European states Monaco: estimates GDP of $900m per year Montenegro: Plans to build marina at cost of €650 million San Marino: Listed as ‘above average’ compared to Italy Vatican City: Listed as 18th richest nation per capita in the world Sources: IMF; CIA; World Bank; and others.

Conclusions The study of micro-states is as valid as the study of any other kinds of states. Micro-states have a number of interesting features and economic strategies. But micro-states are weak in geo-political terms and have a range of inherent vulnerabilities.