During World War II, the Principality Monaco was a neutral state. It was fiercely contested by Germany and Italy who had mutually opposing and exclusive ideas as to its future. Prince Louis II had been brought up in Germany and was a general in the French army. He played his connections for all they were worth in trying to keep the country afloat.
The Principality of Monaco is a Mediterranean state and port city completely enclosed by France on its landward side. It is an independent country since 1489 and a Principality since 1619. The Principality was annexed by France during the Revolution and again during the Hundred Days. In the Congress of Vienna, it was restored in 1815.
At the start of World War II, Monaco was ruled by Prince Louis II. He was the son of Prince Albert I and his first wife Lady Mary Hamilton. After the divorce of his parents, he grew up with his mother at the court of the Grand Duke of Baden. Accordingly, he was fluent in German and well connected in the German aristocracy. He succeeded his father in 1922.
The German Nazi regime had been aware of the advantages of an independent and neutral Monaco as a center for German international banking and commerce as early as 1933. In 1936, German Minister for Finance Hjalmar Schacht visited Prince Louis II and started setting up companies under laws of Monaco. When war was imminent but had not yet started, Prince Louis suspended the constitution and reigned by decree.
As the Germans occupied France in May 1940, they carefully left Monaco alone. Mussolini joined in by declaring war on France in June 1940 and Italian troops marched straight to Monaco and occupied it. Hitler was furious and told Mussolini in no uncertain terms what to do and the Italian troops retreated. Following this scare, Louis publicly expressed his admiration and support for the Vichy regime under Marshall Petain. His old friend and army colleague Petain (Prince Louis held the post of general in the French army) informed him just how much Monaco's independence was worth. Under heavy German pressure, Louis passed a law to register all Jews in Monaco on July 3rd, 1941, and several German and Austrian Jews that had fled to Monaco were handed over to Vichy France.
Prince Louis was accorded the right to retrieve his movable possessions from occupied France and the German state even bought from him all German shares that he held and at highly overvalued prices, too. All his actions made Louis appear an active collaborator of the German Nazi regime, but all papers concerning the period are still kept under lock and key in Monaco and any historical work on Monaco’s role during World War II has yet to be done. While Louis may appear a collaborator, whatever he did would have been done by any powerless prince to save his stamp sized country caught between super powers.
On November 11th, 1942, Italian troops occupied Monaco again and installed a puppet regime. After the death of Mussolini, German troops ousted the Italians and occupied Monaco in turn. The Germans remained from September 8th, 1943, to September 3rd, 1944. The search and apprehension of Jews was topmost in their agenda. They were hampered therein by local police whose members undertook it at great personal risk to warn people when a Gestapo visit was imminent. The Allied troops liberated Monaco on September 6, 1944.
On May 30, 1944, Hereditary Princess Charlotte, the daughter and heiress of Prince Louis, renounced her succession rights in favor of her son Prince Rainier. He had been kept in Monaco with the whole Grimaldi family. After the liberation, he joined the French army under General de Gaulle on September 28, 1944. Rainier, now Hereditary Prince of Monaco, actively took part in the liberation of the Alsace and received the American Bronze Star Medal for his actions during that campaign.