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- [00:06]
Jessica Mendoza
It was winter at the Vatican, and Pope Francis was desperate. Francis sat in the reception room short of breath. Aides shuffled in and out as the pope worked through what he thought was a bad cold.
- [00:22]
Drew Hinshaw
And advisors and Vatican officials are coming in and and presenting the details of a city state effectively that is awash in priceless treasures but is falling deeper into debt.
- [00:37]
Jessica Mendoza
Our colleague Drew Hinshaw spoke with us from Rome. How much did the finances of the Vatican actually kind of weigh on Pope Francis before his death?
- [00:49]
Drew Hinshaw
Right up until the end.
- [00:52]
Jessica Mendoza
That day in February, Francis reviewed documents. Underneath a cherished painting depicting Mary, undoer of knots. In it, the Virgin Mary is shown unraveling a long ribbon. Three days later, Francis was hospitalized with double pneumonia.
- [01:13]
Drew Hinshaw
And on April 21, he died, leaving his successor with this economic puzzle that one pope after the next has tried to sol.
- [01:24]
Jessica Mendoza
Today, as the College of Cardinals gathers to elect a new leader, a major question looms over the what will the next pope do about the Vatican's financial crisis?
- [01:36]
Drew Hinshaw
I mean, this is one of the hidden stories of really the modern papacy is how much the bishop of Rome is the ultimate bookkeeper for the Vatican.
- [01:47]
Jessica Mendoza
How would you describe the financial mess that this next pope will inherit?
- [01:51]
Drew Hinshaw
I would say unheavenly.
- [01:58]
Jessica Mendoza
Welcome to the Journal, our show about money, business and power. I'm Jessica Mendoza. It's Wednesday, May 7th. Coming up on the show, do the Vatican's finances need divine intervention? For all its global influence, the Vatican is tiny. It's the world's smallest country. It sits in the center of Rome, occupying an area about one tenth the size of Central Park.
- [02:42]
Drew Hinshaw
The Vatican, it's both, like, you think of it as the heart of the Catholic Church, but maybe it's better to think of it as like the brain.
- [02:49]
Jessica Mendoza
That's Drew again.
- [02:50]
Drew Hinshaw
You know, it's 900 residents. It's the home of the Pope, you know, and it's where the direction of the church is set, of course, but it's not where the money's made.
- [03:05]
Jessica Mendoza
The Vatican might call to mind priceless treasures, gold chalices, the Sistine Chapel, vast cathedrals. But if you look at the religious institution through a fiscal lens, it's actually asset rich and cash poor.
- [03:19]
Drew Hinshaw
You know, the money on Sunday, when, you know, when the collection plate goes around, that's not really going to Rome. That's going to, you know, your local and national church. It's this odd thing where it's just totally paradoxical. This extremely wealthy city state that's at the center of this, you know, the largest Christian denomination. But it's not where the money is in the Catholic Church.
- [03:43]
Jessica Mendoza
Unlike other countries, the Vatican collects no taxes. The microstate is increasingly relying on revenue from museum ticket sales and tourism. And that money has to pay for a lot of stuff.
- [03:55]
Drew Hinshaw
It's got to fund a network of embassies all around the world. It's got to fund a small army, the Papal Swiss Guard. It's got to do upkeep on these marvelous buildings that you can stand and take selfies in front of. And it's increasingly dependent on museum ticket sales to do that. This has got to be the only state on earth that depends on ticket sales.
- [04:25]
Jessica Mendoza
So how bad is the Vatican's financial situation right now?
- [04:29]
Drew Hinshaw
The pension fund is. One source told us he used the words five alarm fire.
- [04:36]
Jessica Mendoza
As for the Vatican's budget deficit, it's.
- [04:39]
Drew Hinshaw
Around 80 million euros, give or take, which is triple what it was about 10 years ago. Wow, it's looking really dire.
- [04:47]
Jessica Mendoza
I want to understand how far back this problem goes. Was there a time when money wasn't a problem for the church?
- [04:56]
Drew Hinshaw
Maybe in the year zero? I'm being a bit. Look, this history really goes back, like centuries and centuries. Of course, the irony is, look, when you go to the Vatican and you see all these beautiful buildings, you're seeing buildings from an era when paying the bills wasn't very difficult for the Pope. You know, the crusades, Sistine Chapel, St. Peter's Basilica, these were all financed, but they were financed through a 6th century invention called indulgences. Although that practice was considered so corrupt, it helped spark the Reformation.
- [05:34]
Jessica Mendoza
For centuries. These indulgences, basically money to reduce punishment in the afterlife, kept cash flow until the practice ended in the 16th century. The church also made money by taxing the rich Italian farmland. It controlled territory known as the Papal States.
- [05:52]
Drew Hinshaw
And that was a pretty steady stream of income.
- [05:55]
Jessica Mendoza
But that business model fell apart in 1870. That's when the armies of Italy wrested Rome from Pope Pius IX. And it wasn't until 1929, under a treaty with Italy, that the Vatican became an independent city state, occupying 0.2 square miles in the middle of Rome without taxes. The new microstate needed other sources of revenue. So the Vatican positioned itself as a financial hub, creating its own Vatican Bank. That bank started taking big shares in Italian and European companies. It also started getting mixed up in scandals, including allegations of money smuggling and laundering.
- [06:38]
Drew Hinshaw
Along the way, the Vatican kind of develops this reputation in the 70s and 80s for being like just basically a really shady place to have a bank account. If You've ever seen Godfather 3, you know, this is basically that, that era. Oh, if only prayer could pay off.
- [06:55]
Jessica Mendoza
Our $700 million deficit. 769.
- [07:01]
Drew Hinshaw
There was a kind of mafia linked financier who before his downfall, he'd been close to Pope Paul VI and he had ties to New York's Gambino crime family. Michele Sendona, the Italian financier convicted of a multi million dollar fraud that led.
- [07:17]
Jessica Mendoza
To the biggest bank failure in our country's history.
- [07:20]
Drew Hinshaw
There was also a huge scandal in the 1980s when the Vatican bank got caught up in the collapse of an Italian bank, Banco Ambrosiano, and the bank chairman was found hanging under Blackfire's Bridge in London. The man known as God's banker was found hanging from a bridge, his pockets full of cash and bricks.
- [07:45]
Jessica Mendoza
By the early 2000s, the Vatican's money problems had become pretty dire. Benedict XVI, who became pope in 2005, set up a unit to combat money laundering. And the Vatican bank started releasing annual reports for the first time. But the financial knots proved to be too much.
- [08:03]
Drew Hinshaw
And every source we've talked to has said that this was a factor in Benedict deciding he would become the first Pope to resign since 1415.
- [08:14]
Jessica Mendoza
That's, you know, I remember when Benedict stepped down and I remember what a huge deal it was. I had no idea it had to do with money problems.
- [08:23]
Drew Hinshaw
Right, right. By all accounts, the headache of trying to clean this up just became a lot for him.
- [08:31]
Jessica Mendoza
Into this mess stepped Pope Francis.
- [08:34]
Drew Hinshaw
The fight against poverty and hunger must be fought constantly.
- [08:42]
Jessica Mendoza
Francis election in 2013 seemed to represent a new era of reform. He was known for his frugality, having lived through many financial crises in his home country of Argentina. As Pope Francis attempted to modernize the Vatican's bookkeeping, nuns were still keeping ledgers with pencil and paper. Under his stewardship, the Vatican bank closed thousands of suspect accounts. He slashed cardinal salaries. And perhaps the biggest move of all.
- [09:08]
Drew Hinshaw
He hires, you know, an executive from the accountant firm Deloitte and basically says, brings him into his office and he says, I want you to be independent. You have my, like, go ahead.
- [09:18]
Jessica Mendoza
Blessing.
- [09:19]
Drew Hinshaw
Yeah, yeah, you have my blessing. I wasn't going to use the word, but you have my blessing to probe our accounts, like, you know, to conduct audits. This was the first time the Vatican had an outside auditor in its modern history.
- [09:36]
Jessica Mendoza
How did members of the clergy in the Vatican respond to these efforts?
- [09:42]
Drew Hinshaw
Not well, I think is one way you could say it. And look, their reasoning is this money is vital. We need it to host A commission of theologians. We need it to buy office supplies, coffee. We need this to run our outfit. And if we have to go through the ropes of getting it from the Vatican treasury, which is this whole other thing that the auditor is looking into, it's going to be really hard and time consuming.
- [10:10]
Jessica Mendoza
According to the Journal's reporting, one cardinal took cash out of a Vatican bank account with plans to hide the money from a team set up to track budgets.
- [10:20]
Drew Hinshaw
The cardinal's advisor was telling him, we must save our money. And they took money out of the Vatican bank and started storing the cash in a bag. Literally a bag.
- [10:33]
Jessica Mendoza
Wow. The auditor that Francis empowered to clean up the message soon had a target on his back.
- [10:43]
Drew Hinshaw
It gets really crazy. I mean, the auditor comes back to his office at one point, and the office has been broken into. It's Monday morning. The bottom of his laptop is unscrewed. There's a spring missing.
- [10:53]
Jessica Mendoza
Wow.
- [10:54]
Drew Hinshaw
And he's spooked. He goes and asks Francis, like, what am I supposed to do? And Pope Francis doesn't really push for an investigation. He just says, let's put security cameras outside the office.
- [11:07]
Jessica Mendoza
The auditor says he hired external consultants to investigate the tampering of his computer and to sweep for bugs in his office. But In June of 2017, Vatican police detained the auditor on suspicion that he hired private investigators to spy on Vatican staffers. The auditor was pressured to resign. He denies the spying allegation.
- [11:29]
Drew Hinshaw
And that's basically where that auditing effort hits a wall.
- [11:37]
Jessica Mendoza
Now the financial woes that plagued Francis will fall to his successor.
- [11:42]
Unknown Speaker
And now the doors close. You can hear the applause breaking up behind us here in St. Peter's Square.
- [11:51]
Jessica Mendoza
But should the next Pope continue his reforms? The clergy is already taking sides. That's next.
- [12:08]
Unknown Speaker
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- [12:19]
Jessica Mendoza
Uh.
- [12:19]
Unknown Speaker
Oh. Well, life doesn't always give you time to change the outcome. But pre diabetes does. With early diagnosis and a few healthy changes, you can stop prediabetes before it leads to type 2 diabetes. To learn your risk, take the one minute test today at doihaveprediabetes.org, brought to you by the Ad Council and its pre diabetes awareness partners.
- [12:45]
Jessica Mendoza
The Curia. The church's governing body, is famously secretive. So as the conclave gets underway this week, Drew and his reporting partners, Joe Parkinson and Stacey Mike Tree, have been holding hushed meetings across Rome.
- [12:59]
Drew Hinshaw
I've reported on authoritarian countries. And I've rarely encountered the kind of just evident nervousness in talking to the press that you encounter here in the center of Rome when you're trying to answer questions about the budget deficit of the Vatican.
- [13:15]
Jessica Mendoza
Drew and the team met with officials from the Vatican's bank, pension fund, and regulatory institutions, and with cardinals attending the conclave.
- [13:23]
Drew Hinshaw
We had one guy sit down with me near midnight in a piazza, and one of his first questions for me was, you're not recording me, are you? Because if you're recording me, this interview's over. And of course, we weren't, you know, but it's all fairly cloak and dagger here.
- [13:41]
Jessica Mendoza
But you did manage to get people to talk to you.
- [13:43]
Drew Hinshaw
Mm. Yeah.
- [13:44]
Jessica Mendoza
What did you hear?
- [13:46]
Drew Hinshaw
People are quite alarmed.
- [13:50]
Jessica Mendoza
Ahead of the start of the conclave, cardinals held multiple sessions to discuss the financial crisis. One big issue is the pension fund for aging clergy members. The fund is facing about 2 billion euros in liabilities, but the culture of financial mismanagement is also a wedge issue.
- [14:08]
Drew Hinshaw
There's kind of two camps. There's one that can see it in the kind of dollars and cents terms that we're discussing it, but there's others who say, look, we're here to talk about matters of God, of spirituality. Why are we talking about these earthly concerns that are secondary to our mission of saving souls? And, you know, the church has been around for 2,000 years. There's a feeling of this is if. Look, if you were running a country, just a kind of a totally secular, small municipality of 900 people, and you had these kind of budget deficits, you'd be freaking out. But when underneath that municipality is 2,000 years of history, I think. You think, well, you know, we've survived before.
- [14:50]
Jessica Mendoza
What happens if the next pope either does nothing or isn't able to solve this problem? Is this existential for the Catholic Church?
- [15:01]
Drew Hinshaw
The way this was put to me is that they can't just keep kicking the can down the road. They're going to have to do things that are undoubtedly going to be painful for clergy who are expecting to, you know, be able to retire and who have obviously fixed salaries and, you know, who have one profession. Everybody we've talked to sees only painful choices ahead.
- [15:26]
Jessica Mendoza
It might mean more salary cuts, reducing core emissions, hiking museum fees, overhauling the Vatican bank, but there's one seemingly obvious solution to this whole money problem. So, Drew, can you explain to me how can the Vatican be in such a financial mess if it's also sitting on this pretty unimaginable wealth of Art and history, right? They've got the manuscripts and the Vatican Library. They've got works of art from da Vinci and Michelangelo. Couldn't they just sell that stuff?
- [15:58]
Drew Hinshaw
The Vatican has no intention of ever selling off its inheritance. In fact, it lists many of its kind of priceless works of art, including the Sistine Chapel, on its books as at a nominal value of. Of €1 each, which is a way of saying these things are of religious and artistic and historical significance, not of financial significance. It would never, ever part with its. This is its patrimony.
- [16:23]
Jessica Mendoza
For the people most concerned about the Vatican's books, their hope is that the Conclave will elect someone who can tether heaven to the ground, a pope who is part saint and part CEO.
- [16:34]
Drew Hinshaw
There's like this incredible paradox at the center of this. You have a country that has immense wealth, but it's unable to sustain its basic functions without running a deficit. It's got all these people who work in finance who are basically in the Vatican running its bank and everything else. But at the end of the day, the decisions are taken by clergy who, quite honestly, could talk to you more about gospel or Acts or the New Testament or the Old Testament than, you know, the nuts and bolts of an audit. It's where two realms kind of meet, isn't it?
- [17:15]
Jessica Mendoza
Yeah. Like, literally, like the earthly and the heavenly, I guess. The spiritual.
- [17:20]
Drew Hinshaw
Yeah, exactly, yeah. Yeah. On the one hand, cardinals are electing someone who is very pointedly in charge of the biggest issues in life. You know, theology and spirituality and life after life and, you know, doing good in the world and all of the things that are core to the Christian gospel. But they've got this kind of dollars and cents problem that they also have to solve. And the idea that one person is going to be good at both of those issues, it's. I don't know, seems like a lot to ask of one human being.
- [18:12]
Jessica Mendoza
That's all for today. Wednesday, May 7. The Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode from Joe Parkinson and Stacey Mike Tree. Thanks for listening. See you tomorrow.