Ancient haven San Marino fights for banking life

Sun Aug 16, 2009 10:56pm EDT
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By Deepa Babington

SAN MARINO (Reuters) - San Marino has seen medieval intrigue and papal army invasions in its 1,708-year history, but a modern-day banking scandal and blitz on tax havens risks bringing the world's oldest republic to its knees.

From its hilltop perch near Italy's Adriatic coast, the offshore banking center just a third of the size of Washington D.C. is battling a concatenation of crises -- capped by a money-laundering scandal at its largest bank -- that has forced a frantic rethink of its financial model.

"We're not going to hide that this is a difficult time for San Marino," Antonella Mularoni, the state's foreign secretary said in her office with 19th-century frescoes on the ceiling.

"It's been a few months of huge difficulties and we clearly need the crisis to blow over rapidly."

Blow after blow have rained on the Most Serene Republic of San Marino in months, leaving the city-state of 31,000 people harder hit than larger offshore rival Luxembourg, according to the Fitch ratings agency which downgraded its sovereign ratings.

First came the credit crunch and ensuing downturn, followed by a global crackdown on offshore centers to fight tax dodging. Arrests of top executives at its most important bank, Cassa di Risparmio della Repubblica di San Marino (CRSM), and a tax amnesty approved by Italy this month completed its misery.

"A climate of uncertainty and mistrust has been generated -- for broader reasons and for reasons specifically related to San Marino -- which is certainly weakening the system," said Biagio Bossone, chairman of San Marino's four-year old central bank.

"Now when one talks of San Marino, it is spoken of badly. It seems as if the world is against us."   Continued...

<p>A general view shows the government building in San Marino August 12, 2009. REUTERS/Stefano Rellandini</p>