Why Is Monaco a Country?

Craig R. Whitney, in the NYT (4-10-05):

... Why is it a country? Because, like Luxembourg and Liechtenstein, it is a relic of Medieval Europe that more powerful neighbors allowed to survive. The House of Grimaldi, the clan that seized control of Monaco in 1297, adroitly played Italy, France and Spain against one another over the centuries and remained sovereign - to a degree.

Tourism and gambling, with the kind of gamblers who arrive by yacht, were long the mainstays of the economy. Rainier's great-grandfather, Charles III, started the first of the gambling casinos in the section now known as Monte Carlo in 1863, and the prince is the major shareholder in the company that controls them.

Rainier faced a crisis in 1962, when Charles de Gaulle grew fed up with French citizens' taking residence in Monaco to avoid paying income tax. He threatened to isolate the principality and cut off its supply of French francs, the principality's currency until the advent of the euro. In 1963, Rainier agreed to a treaty that decreed that the French citizens who live in Monaco (currently there are some 12,000) have to pay income tax to Paris.

Prince Rainier's storybook marriage to Grace Kelly in 1956 increased the principality's popularity as a resort, and the prince used low business taxes to lure more than 100 service companies and private banks, mostly foreign-owned. He also built a huge convention center on a landfill in the harbor.