God's Bankers: A History of Money and Power at the Vatican

by Gerald Posner

  Leo felt compelled to entertain bold measures to strengthen the church’s anemic balance sheet. It was not long before he approved the church’s first ever, albeit limited, interest-bearing loans. The Pope soon learned that simply changing the rules did not guarantee success. His unsophisticated clerical advisors—without any financial training—did not insist on collateral for the first round of loans they issued. Instead they based their decisions solely on the name of the penurious aristocrat borrowing the money. In the first year of Leo’s reign more than a million lire in loans were written off as worthless debts.13

  The bad results prompted the Pope to immerse himself in the basics of lending. He insisted that, going forward, he review each loan. And he reserved final approval for all real estate deals, soliciting Peter’s Pence, and raising cash from pilgrimages. Leo’s advisors considered his micromanagement unnecessary and his incessant meddling time-consuming. But his fear they were incompetent kept him from giving them more authority. Leo also worried about thievery. He kept much of the church’s spare cash, jewelry, and gold in large trunks stacked in his enormous bedroom.14

  The Pope flirted with buying a small newspaper network dedicated to battling Freemasonry.15 But before the deal closed, the Catholic bank and financiers who had pitched the proposal went bust. That convinced him that instead of putting the church’s money at risk in a business venture, it was safer in real estate. Starting in the 1880s, he ordered that most of Peter’s Pence be invested through silent partnerships into Roman property. Leo caught the early stages of a massive speculative building boom.16 The spiraling property prices brought tremendous profits. Many Black Nobles became rich just by investing their own money into the same projects the church chose.17 A handful of those men used their wealth to fund the start-up Banco di Roma (Bank of Rome).18 They then convinced the risk-averse Pontiff to make a sizable investment in the bank. The Vatican also followed the bank’s lead in buying shares in Rome’s trolley system as well as a controlling stake of a British-owned company that supplied water to the capital.19 Subsequently, when Italian aristocrats took loans from the church, they often provided their shares in the Bank of Rome as collateral, further binding the church and the bank.

  Leo turned out to be more successful at stabilizing the church’s finances than he was at quelling the deteriorating political turmoil between the church and Italy. A succession of left-wing, anticlerical administrations passed laws hostile to the Vatican, exacerbating Leo’s mistrust of secular government. One statute abolished an obligation that Italian farmers pay the Vatican a tithe. Another authorized the confiscation of some church assets. The tension between church and state grew so fierce that Leo decided to abandon Rome and govern the church in exile from France. But just as Italian officials had been warned eight years earlier when the cardinals considered moving the conclave from Rome, informants tipped them off about Leo’s plans. Italy gave the Pope an ultimatum: if he left he could never return. Leo and his advisors stayed put. The episode caused great concern inside the Papal Court that secular spies had penetrated it. So Leo consolidated authority in an ever-smaller group of long-standing clerical aides.20

  The decision to stay in Rome meant the Pope was there to witness firsthand the great property crash of 1887. The Bank of Rome, in which the Vatican was a major investor, suffered huge losses. The church itself was badly damaged, losing about a third of its capital in less than a year.21 Leo disclaimed any responsibility for the debacle. Monsignor Enrico Folchi, who held a senior position in the Vatican’s finances for eleven years, got blamed. The Pontiff unceremoniously dismissed him. Many inside the Papal Court, however, felt as though Folchi was a convenient scapegoat.

  Folchi’s replacement was Monsignor (later Cardinal) Mario Mocenni, a cleric with a reputation as a fiscal conservative.22 Soon after taking office he indicated that he might be more willing than his predecessors to experiment with modern financial techniques: “If money had a religion, it would be Jewish, but fortunately it doesn’t have one, as a result of which it can be venerated by everybody.”23 Mocenni sent some of the church’s gold and cash to the Rothschilds for safekeeping in Paris, the first time they were again involved with the Vatican since Pius IX had unceremoniously cut them off in 1860.24

  Monsignor Mocenni was soon overshadowed by a layman, Ernesto Pacelli.I. Pacelli had become the president of the Bank of Rome in the aftermath of the real estate bust. His sage and conservative stewardship stopped the bank’s hemorrhaging and led quickly to a profitable resurgence. As the property crash played out, Pacelli and Leo had met regularly and developed a good friendship. By 1891, Leo had overcome enough of his anxiety about possible government spies to allow Pacelli to become his most trusted lay confidant. Pacelli was wise to the Machiavellian politics of the Papal Court. He assiduously doled out favors—ranging from generous Bank of Rome loans to prestigious directorships in private companies—to dozens in the Pope’s entourage. As the bank’s president, Pacelli also counted as friends many senior Italian government ministers. That allowed him the opportunity to act as an unofficial mediator between the Vatican and the often belligerent Italian state. Pacelli managed to persuade Italy’s officials to refrain from passing more punitive laws against the church while convincing Leo to dial back his antigovernment rhetoric and threats of excommunication.

  Most European governments wanted some assurance that Leo would distance himself from the reactionary tone set by his predecessor’s Syllabus. They were tired of the standoff between church and state. During the early years of his Papacy Leo had taken small but encouraging steps that raised the expectations of reformers. He reopened the Vatican’s abandoned observatory and appointed an astronomer, not a priest, to run it. With a single decree he eliminated the eunuchs who for centuries had sung in the Sistine Chapel.25 And he surprised academics and historians by opening some of the Vatican archives, even to non-Catholics.26

  Those small reforms were soon forgotten when Leo reaffirmed Pius’s ban on Catholics participating in Italian elections. Pacelli had failed to convince Leo that the ban was counterproductive since it sacrificed any influence the church might have in the new Italy. Allowing Catholics to vote, the Pope feared, would implicitly acknowledge the legitimacy of the secular government. Leo demanded, as had Pius, nothing short of a full restoration of the Papal States. And he naively thought he could convince Germany, Austria, and France to support his bid. Pacelli, who had far more real-world experience than the cloistered Leo, told him that was unrealistic. That did not dissuade the Pope, who tried escalating the restoration of the Papal States into a pressing international issue. Leo tried putting what by then was called the “Roman Question” on the agenda at a conference of Western countries in The Hague. After ten months of aggressive lobbying, the Vatican could not even get an invitation.

  Pacelli cited the diplomatic missteps to argue that the church’s strength was not in secular diplomacy but instead in the power and independence of its finances. He urged the Pontiff to be more open-minded about free enterprise. The Pope initially seemed resistant when he condemned unrestrained capitalism in several encyclicals. But Pacelli influenced Leo’s most famous edict, Rerum Novarum (On the New Things), a not very subtle effort to stem the surge of socialism and militant Marxism. In that encyclical—for the first time—although the church condemned capitalism’s exploitation of workers, it backed the right to a decent wage, better working conditions, and even trade unions. (Rerum earned Leo the nickname “the worker’s Pope.”)27

  Pacelli also asked the Pontiff to make some modest investments in banks, construction firms, and utility companies. He argued that it did not constitute capitalist behavior since those were essential industries that allowed average Catholics to live comfortably. Whether the Pope believed that or simply needed a credible justification for saying yes, he agreed.28 By the start of the twentieth century, the Vatican had gone so far as to open forty-four small Catholic banks throughout Italy, all dedicated to providing Catholic workers a
trusted place in which to deposit their earnings. Those church-owned banks even offered a few limited loans to the faithful.29 And in keeping with his encyclical trumpeting workers’ rights, Leo opened the first of what would become a national network of social and economic cooperatives to help Italy’s poorest workers. There were soon Catholic-sponsored peasant leagues, workers’ unions, and food cooperatives.30

  Those tentative steps toward embracing modern financial practices made Leo stand out from the regressive isolation of his predecessor. But in the final years of his Papacy, Leo reversed course and became increasingly intolerant, destroying whatever goodwill he had earned. Over a dark eighteen-month stretch he reaffirmed Syllabus, spoke out against the separation of church and state, condemned freedom of the press and religious tolerance, and reiterated the medieval philosophy of Thomas Aquinas that only those who accepted Catholicism could be productive.31 He rebuffed all appeals to reverse the Papal ban on Catholics serving in government.32

  Leo even questioned whether there was any intrinsic value in democracy. He bitterly denounced so-called Americanism, the U.S.-based movement to modernize Catholicism.33 In just over a century, the number of Catholics in America had soared from thirty thousand to more than six million, largely because of a surge in Italian and Irish immigrants. There was great promise for the church in the New World. But Leo and many Roman clerics opposed pluralism. America’s separation of church and state, combined with its embrace of personal liberty and unfettered individual capitalism, rankled the Vatican. It was heresy, concluded Leo, to allow any secular state to develop without the integral involvement of the church at every stage.34 The best form of government, concluded the Pope, was a benevolent monarchy (which conveniently included a Papal empire).35

  By the end of his Papacy, Leo was every bit as reactionary as Pius.

  The “frail” Leo, elected in part because some cardinals considered him a stopgap Pontiff who would have a short reign, died in 1903 at the age of ninety-three. During his quarter century as Pope, he had outlived many of the cardinals who had voted for him. Inside the Vatican, there was almost a palpable relief at Leo’s passing. He seemed, even to those who liked him, too old and out of touch. The church was just a few years into a new century. And as the cardinals began arriving in Rome to elect a new Pope, there was widespread consensus that the next Pontiff should be different. The problem was that no one could agree on which quality was most important. That promised a wide-open conclave.

  * * *

  I. Ernesto’s cousin Eugenio joined the priesthood. He rose to become the Vatican’s Undersecretary of State, then in 1920 the Papal Nuncio to Germany, before being elevated to Cardinal Secretary of State in 1930. In 1939, Eugenio Pacelli was elected Pope Pius XII.

  4

  “Merely a Palace, Not a State”

  The selection of every Pope has meant behind-the-scenes intrigue and heavy politicking. Up until the sixth century, the horse-trading began before the sitting Pope was even dead. And during the Middle Ages, a few aristocratic Italian families got together and ate and drank until they had agreed on a new Pontiff. The gathering after Leo’s death was not marked by any of the fistfights, threats, and bribes that had been a hallmark of some notorious conclaves.1 But it turned out to be the last assembly of cardinals in which Catholic European powers affected the outcome. France, Spain, and Austria had wielded an effective veto power for more than a hundred years. After Leo’s death, Vienna blacklisted the odds-on favorite, the dead Pope’s powerful Secretary of State, Cardinal Rampolla del Tindaro.2 They considered him too cozy with the French. That opened the door to Venetian Cardinal Giuseppe Sarto, whose best quality seemed to be that he was not closely identified with any of Leo’s mostly unpopular policies. After ten ballots, he emerged as the Pope and chose the name Pius X.3

  The new Pius had served nearly twenty years as a parish priest before beginning his ascent to the Papacy. He had a well-deserved reputation as ultraconservative, humble, and disciplined. His longtime aides warned others that he was also a great pessimist. Pius’s Papal motto—“to restore all things in Christ”—indicated he considered that religious obligations always trumped secular ones.4 Black Nobles worried that as the first modern Pope from a simple working-class family, he might not appreciate the pomp of the grand Papacy. They were right. He was not inclined to dole out lavish favors and princely gifts to either his friends or those serving in the Papal Court. When one aristocrat suggested he elevate his own sisters to Papal Countesses, he dismissed him. “They are sisters of the Pope, what more can I do for them?”5

  Other small changes signaled a populist touch. For the first time, the Pope’s secretaries dined with him. And he permitted lay Catholics to sit in his presence, changing the centuries-old imperative that they kneel. Kissing his slipper was no longer allowed. He claimed that the sedia gestatoria—an ornate, portable ceremonial throne—made him dizzy. The new Pius ended the requirement that everyone applaud whenever he entered St. Peter’s. And he took strolls in the Vatican gardens on his own instead of being surrounded, as had Leo, with a retinue of Noble Guards.6

  Besides stripping away some of the gilded obsequiousness attached to the Papacy, he also tried to streamline the chaotic web of the Roman Curia. The Vatican’s bureaucracy had grown over centuries to consist of often redundant congregations, offices, and tribunals, many of them tainted by huge financial waste and nepotism.7 Although the church was international, the Curia was almost entirely Italian. To outsiders it seemed oppressively complex and marked by a lethargic work ethic.8 After the loss of the Papal States, the Curia defied logic by expanding instead of shrinking. Pius ordered it to reduce its thirty-seven departments to nineteen.9 Reforming the Curia however was not as simple as issuing a few directives. Those with entrenched power resented that Pius was one of the first Popes never to have worked in the Curia. They were determined from the outset to undermine any major reorganization. “Popes come and go,” was the unofficial motto inside the Curia, “but we go on forever.”10 Their resistance took the form of pretending to undertake most of the reductions. The career bureaucrats shuffled jobs between various offices and also folded some small departments into larger ones. Only insiders knew that the window dressing belied the fact that little had changed.11

  Believing that the Curia was reforming itself, Pius turned his attention elsewhere: how best to stem the growing popularity of a movement of clerics and lay philosophers who challenged traditional Catholic dogma on everything from interpreting the Old Testament to whether the church should embrace democracy. So-called modernists—dubbed that since they collectively wanted the church to adapt itself to the changes of a new world—urged widespread reform and liberalization.12 The modernist movement had gained momentum while Leo was still Pope, but he had rebuffed it by reaffirming the reactionary Syllabus. Now, some modernists appealed to the new Pontiff, hoping he might be more receptive. But those familiar with his tenure as Venice’s cardinal knew it was unlikely. Pius was a conservative pastor, without any formal education. He was not in the least sympathetic to modernism.

  “These people expect to be treated with oil, soap and embraces,” Pius said. “What they need—and what they will get—is a good fist.”13 He gave them a “good fist” by releasing an encyclical, Lamentabili Sane (Lamentable Certainly), a rambling condemnation of the liberalization movement.14 Pius followed that by creating a clerical committee in every diocese across Europe to guard against the perversion of the faith. For the first time in its history, the church deployed the equivalent of a secret police, relying on informers to uncover modernists and those who secretly supported them.15 Anonymous denunciations were encouraged. No one was spared. The cardinals of Vienna and Paris as well as the rectors of several top Catholic universities were denounced among the hundreds who were purged (even Archbishop Giacomo Della Chiesa—who would become the next Pope—was investigated for suspicion of “doctrinal deviance”).16 Pius required that all priests take an antimodernist oath (it was in
place until Pope Paul VI eliminated it in 1967).17 He lowered to seven from twelve as the age at which children made their first confession and received communion. That would help priests monitor any youngster who might be entertaining modern thoughts.18

  Beyond ferreting out suspected sympathizers, the crackdown expanded to net scholars whose work the simple Pius viewed with suspicion. Encouraged by the Pope, the church moved more aggressively than ever to ban books it considered dangerous. The works of acclaimed modernist scholars such as Ernesto Buonaiuti and Alfred Loisy were transferred to the Index Librorum Prohibitorum (Index of Prohibited Books). Writers who refused to be silenced, like George Tyrell, were excommunicated.I And the Pope stacked the Vatican’s Biblical Commission with regressive prelates who recommended the suspension of the entire theological faculties at leading Swiss and French institutes and universities.20

  A Pope with such a backward view of the world did little to modernize how the Vatican’s financial advisors operated.21 He relied on Pacelli, who told him that the church was solvent although money was tight. Yet the Pope’s innate pessimism meant that no matter how many times Pacelli reassured him, he fretted about being short of money. In his first year, he even shuttered the tiny zoo in the Vatican’s gardens as he feared it too great a financial drain.

  Pius’s dark mood lifted somewhat when early in his tenure Pacelli informed him that Peter’s Pence contributions had set a record.22 The upsurge in cash was an unintended consequence of the Pope’s unyielding rejection of secularism and his refusal to cooperate with other faiths. It seemed that ordinary Catholics loved when the Pontiff brooked no compromise in those high-profile squabbles. In France, Prime Minister Émile Combes, a lapsed Catholic who had become a Freemason, was instrumental in passing the Law of Separation. It removed Catholicism as the country’s official religion. Pius responded by suspending diplomatic relations with France, which had long been the church’s closest ally.23 When the Portuguese also separated church and state, Pius castigated them. Much to the irritation of Britain, he backed Ireland’s Catholics. He angered Germans by issuing an encyclical praising a saint who had fought against the Protestant Reformation. And Russia was miffed by his aggressive efforts to energize Catholics there.24 He even once refused to grant an audience to Teddy Roosevelt because he thought the ex-President had insulted Catholicism by visiting Methodist and Masonic groups in Rome. The widespread press coverage of his slight to Roosevelt caused contributions to spike again.25