Monaco has been governed as a constitutional monarchy since 1911, with the hereditary prince (presently, Prince Rainier III) as the head of state. Unlike other European monarchies, the Monegasque sovereign is the actual, and not symbolic, head of state. In the constitution of 1962, it is clearly stated that the executive power is responsible to the supreme authority of the reigning prince. The succession to the throne passes to the direct descendants of the prince under the principle of primogeniture (inheritance of the first born), with male descendants taking precedence over female descendants of the same degree of kin. The sovereign represents Monaco in its relations with foreign powers and signs and ratifies treaties. In 1956, Rainier III married American film star Grace Kelly, who died in a car crash in 1982. They have 2 daughters and a son, who is the heir apparent to the throne.
The executive branch consists of a minister of state (head of government, presently Michel Leveque), who presides over a 4-member cabinet, the Council of Government. The minister is primarily responsible for foreign relations and is traditionally a French citizen appointed by the prince for a 3-year term from among several candidates proposed by the French government. As the prince's representative, the minister also directs the executive services, commands the police, and presides (with voting powers) over the Council of Government. The 3 other members of the Council are locals, responsible for financial and economic affairs, internal affairs, and public works and social affairs, respectively.
Monaco is a parliamentary monarchy ruled according to its 1962 constitution, which stipulates that the hereditary prince shares his power with the unicameral National Council. There are 18 members of this legislative body, elected by universal suffrage (by citizens over age 21) for 5-year terms. They usually meet twice annually to vote on the budget and endorse laws proposed by the prince. If the prince dissolves the National Council, new elections must be held within 3 months. Ordinances passed by the National Council are debated in the Council of Government, as are the ministerial decrees signed by the Minister of State. Once approved by the Council, the ordinances are submitted to the prince within 80 days for his approval. Once approved, the ordinances become legally valid. If no opposition is voiced on his behalf within 10 days of receipt, they become enforceable.
Legal power is also vested in the monarch, who delegates all legal procedures to the courts dispensing justice in his name. The independence of the judges, however, is guaranteed by the 1962 constitution. Monaco's legal system is closely related to the French system and is designed after the French Napoleonic Code. Local affairs—the administration of the 4 quarters—are directed by the Communal Council, which consists of 15 elected members and is presided over by a mayor. Monaco has its own local political groups that are not a part of the French political system and include the National and Democratic Union (UND), the Campora List, and the Medecin List.
The most crucial political issue in Monaco is, understandably, its bilateral relation with France. The geographical situation of Monaco as an enclave within France justifies the traditional customs and monetary union between the 2 countries, which dates back to 1861. Two major treaties in 1918 and 1919 established a reciprocal contractual basis for the relations between the 2 independent states (France recognized Monaco as a sovereign entity and undertook to build its relations on an equal footing with a limited protection over the principality). Under these arrangements, France is obligated to defend the independence and sovereignty of the principality and the integrity of Monegasque territory. In return, the government of Monaco is obligated to exercise its rights only in conformity with French interests. New bilateral agreements were signed in 1945, 1951, and 1963 with the aim of amending the earlier provisions in order to adapt them to the new economic and social conditions. Further changes and amendments arose from the development of European integration and the decision made by France in 1999 to adopt the single European currency, the euro.
Although small in size, Monaco actively participates in the United Nations (UN), which it joined in 1993, and maintains a permanent mission to the UN in New York. Monaco also is a member of many other international and intergovernmental organizations. The International Hydrographic Bureau (IHB) is headquartered in the principality. The country has 10 diplomatic missions in Europe and maintains honorary consulates in 106 cities in 45 countries. Sixty-one countries have consulates general, consulates, or honorary consulates in or accredited to Monaco.
The government's role in the economy has been traditionally one of active promotion of private enterprise and creating the necessary infrastructure for development. The state and the ruling Grimaldi family personally own considerable real estate assets and equity in the economy. Monaco's tax policies concerning its citizens are among the most liberal ones in the world, as there is no direct taxation for local residents. In 1869, land tax, personal and goods taxes, and the business tax were abolished. Since that time, Monegasque citizens or foreigners residing in the principality have not been subject to any tax on their personal income, whatever its origin. For French citizens moving to the principality after 1962, an exception was introduced in 1963 under pressure from the French government. Under the new arrangement, French nationals who moved their residence to Monaco, or who could not prove 5 years of residence in Monaco before October 1962, were subject to French taxes under the same conditions as if they had their residence in France. Since 1963, companies of any type are required to pay a corporate tax rate of 33.33 percent on profits when at least 25 percent of their turnover comes from operations outside Monegasque territory. A value-added tax (VAT) of 5.5 percent and a real estate added value tax of 20.6 percent were also introduced, along with some special arrangements concerning banking and financial activities and indirect taxes .