Just days before his death, Pope Francis wrestled with an enormous problem: the Vatican’s dire finances. The world’s smallest country is now facing a budget deficit of millions, and a looming crisis in its pension fund. As the Papal conclave meets this week to vote for a new leader, WSJ’s Drew Hinshaw pieces through how centuries of financial mismanagement have culminated into a mess that the next pope will inherit. Jessica Mendoza hosts. Further Listening: - Pope Francis Has Died. What’s Next for the Catholic Church? - The Mormon Church’s $100 Billion Secret Fund Sign up for WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: How did Pope Francis handle the Vatican's financial crisis?
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.
And advisors and Vatican officials are coming in and presenting the details of a city-state, effectively, that is awash in priceless treasures but is falling deeper into debt.
Our colleague Drew Henshaw spoke with us from Rome. How much did the finances of the Vatican actually kind of weigh on Pope Francis before his death?
Right up until the end.
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.
And on April 21st, he died, leaving his successor with this economic puzzle that one pope after the next has tried to solve.
Today, as the College of Cardinals gathers to elect a new leader, a major question looms over the conclave. What will the next pope do about the Vatican's financial crisis?
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.
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Chapter 2: What financial challenges does the Vatican face today?
How would you describe the financial mess that this next pope will inherit? I would say unheavenly. 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.
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.
That's Drew again.
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.
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.
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 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.
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.
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.
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Chapter 3: How did historical events shape the Vatican's finances?
Maybe in the year zero. Look, this history really goes back 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.
For centuries, these indulgences, basically money to reduce punishment in the afterlife, kept cash flowing 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.
And that was a pretty steady stream of income.
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.
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 era. Oh, if only prayer could pay off our $700 million deficit. $769 million.
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 Sindona, the Italian financier, convicted of a multimillion-dollar fraud that led to the biggest bank failure in our country's history.
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Chapter 4: What scandals have impacted the Vatican Bank?
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.
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.
Right, right. By all accounts, the headache of trying to clean this up just became a lot for him.
Into this mess stepped Pope Francis.
The fight against poverty and hunger must be fought constantly.
Francis's 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?
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.
Blessing, yeah.
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Chapter 5: How did Pope Francis attempt to reform Vatican finances?
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.
Wow. The auditor that Francis empowered to clean up the mess soon had a target on his back.
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, and the bottom of his laptop is unscrewed. There's a spring missing. Wow. 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.
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.
And that's basically where that auditing effort hits a wall.
Now, the financial woes that plagued Francis will fall to his successor.
And now the doors close. You can hear the applause breaking out behind us here in St. Peter's Square.
But should the next pope continue his reforms? The clergy is already taking sides. That's next.
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