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Grand Duchess Gloriana XII (Peter Seller), the ruler of the tiny European duchy of Grand Fenwick, convokes the Parliament and Prime Minister Count Rupert Mountjoy (Peter Seller) to discuss the coming financial collapse of their government. The economy, dependent almost exclusively on exporting their wine, Pinot Grand Fenwick, to the USA, is on the brink of bankruptcy as the State of California begins producing a cheaper version, Pinot Grand Enwick. The scheming Prime Minister comes up with the idea of declaring war on the USA, losing, and then accepting foreign aid.

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