The Lateran Pacts settlement left the church with more cash than it had had at any time since it lost its empire. Pius was troubled that he had no competent financial advisor to fill the gap left by Ernesto Pacelli’s fall from grace fifteen years earlier. As he made inquiries, one name topped everyone’s list: Bernardino Nogara.
Pius ordered a background report. The information that came back was good. A devout Catholic who never missed a morning Mass or afternoon devotional, the fifty-nine-year-old Nogara came from a middle-class farming family in a small village near Lake Como.1 He had graduated with honors in industrial and electrical engineering from one of Italy’s premier schools, Politecnico di Milano. In his first overseas job in 1894, he oversaw mining operations in south Wales. That is where he became fluent in English, as well as where two years later he met and married his wife, Ester Martelli.2
After returning to Italy in 1901, he reached out to an acquaintance, Giuseppe Volpi, a Venetian seven years his junior who was in the early stages of a career that would bring him to the pinnacle of Italian business and political power. Volpi was part of a well-connected group of financiers, politicians, and aristocrats, all of whom worked in league with Italy’s largest bank, Banca Commerciale Italiana (BCI).3 He arranged a five-year contract for Nogara to serve as a general manager for a Bulgarian-based mining venture that was planning to expand throughout Asia Minor. In 1907, Volpi tapped Nogara to direct the Constantinople branch of his expanding empire. It was there Nogara learned Turkish and discovered a natural talent for mastering the cutthroat political intrigue that was the hallmark of the Ottoman capital.4 Through his work with Volpi, Pius learned, Nogara earned a reputation for his financial acumen.5
After the Italo-Turkish War—a one-year conflict between Italy and Turkey in 1911 over control of Libya—the Rome Chamber of Commerce selected Nogara as the Italian delegate to the Ottoman Public Debt Council. It was a European-run organization of some five thousand employees whose brief was to pay off the enormous Ottoman Empire debt to Western countries by managing its monopoly and customs revenues in receivership.6
After World War I, Nogara was chosen as the Turkish expert to Italy’s economic delegation at the Versailles Peace Conference, a forum to which the Vatican was denied a role. Nogara impressed his colleagues with his business savvy. Then in 1924, he began a five-year stint in charge of the industry division of the Inter-Allied Commission responsible for rebuilding war-ravaged Germany. There he met many of the same men who now urged the Vatican to hire him to handle the Lateran settlement and remake the church’s finances.7
It was to his favor that Nogara was friendly with the Pope’s family.8 As a layman, his religious credentials were also important. Among his twelve siblings, four brothers had become priests. Two were archbishops, Giuseppe in the northern city of Udine and Roberto in Cosenza, in the south. Luigi was a rector at the Seminary of Molfetta. Pope Benedict had appointed another brother, Bartolomeo, a noted archaeologist, as the general director of the Vatican Museums and Monuments. Bernardino’s only sister was the mother superior of a convent.9 Entrenched rumors that Nogara was secretly a practicing Jew made their way to Pius.10 The Vatican directed parish priests to produce his baptismal records. Nogara came from a Venetian family that had been Jewish before converting during the 1500s when Pius IV expelled all Jews from the Papal States, confiscated their property, and imprisoned and tortured those who stayed and did not convert. Although Pius was satisfied about the matter, the “he’s really a Jew” gossip dogged Nogara during his long tenure.
On June 2, 1929, the Pope met privately with Nogara. That meeting was one of the few not recorded on the Vatican calendar.11 “I know that by asking you [to work here] I am interrupting a brilliant career as a private financier,” the Pope reportedly told him.12 The Pontiff’s solicitous approach won Nogara over and Pius meanwhile was convinced by their meeting that Nogara was right for the job.13
Nogara’s selection required Mussolini’s approval since the church’s investments could have major repercussions for Italy. Though Nogara was not a Fascist Party member, he casually knew Mussolini. Il Duce gave his consent.14
Pius created a new division—the Amministrazione Speciale della Santa Sede (Special Administration of the Holy See, or ASSS)—and put Nogara in charge. The ASSS, or simply Special Administration, was responsible for investing the huge settlement from the Lateran Pacts. Nogara moved into a sprawling apartment in the just-constructed Governor’s Palace, adjacent to the Pope’s private residence. Pius made it clear that not even cardinals had the authority to interfere with his work.15 Nogara met only with the Pope, and his one obligation was to provide Pius an annual written report that was then stored in the Pope’s private safe.16 No copies remain.
The cliquish old guard of Black Nobles and senior clerics were wary of the newcomer.17 They were incensed that Pius had picked a lay commoner and were confident they could undermine him since he was a neophyte. Nogara’s Curial antagonists underestimated him.18 Between his service on large government commissions and also at BCI, a bank known for its brutal infighting, the Milanese banker had learned adeptly how to battle political foes. He moved quickly to fortify his power by hiring several private industry colleagues. Traditionalists were horrified, for instance, when a Credit Suisse banker, Henri de Maillardoz, visited the Vatican to meet with Nogara. The influential Monsignor Domenico Tardini fretted that the mere arrival of Maillardoz—as well as some other bankers from Société de Banque Suisse and Union de Banques Suisses—was a sign that Nogara was contemplating prohibited financial speculation. Tardini thought there were “quieter, safer more stable” ways of guarding the church’s money, and if Nogara and his new team were “wrong, then the Holy See would suffer the consequences of the mistakes.”19 But Tardini protested in vain. Maillardoz left Credit Suisse to become the Secretary to the Special Administration.20 Nogara’s new aides reported to him and he in turn only to the Pope, reinforcing the buffer between him and the old guard.
And to keep his rivals busy on other matters, he ordered that every Vatican department prepare an annual budget and issue monthly income and expense statements.21 He insisted that traditional Curia power brokers produce rudimentary reports that made them accountable for how they spent their money. No longer could cardinals hide the mismanagement in their departments with the excuse that the Vatican itself was in awful fiscal shape. Although such rules seemed elementary accounting, they were new to an institution that had no history of fiscal oversight.22
Nogara decided that the Vatican’s investments were too concentrated in bonds and in the Bank of Rome.23 Any financial problems at that bank would translate into trouble for the Vatican. He boldly diversified the church’s risk, transferring some of the Bank of Rome deposits to Swiss, French, and other Italian banks.24 Next, Nogara invested some of the Lateran Pacts settlement into French and Hungarian railroads as well as German industry.25 From his tenure on the Allied Commission tasked to rebuild German manufacturing, he was convinced Germany was poised for resurgence after its World War I pounding.26 He was friendly with Bertha Krupp, one of the heirs to the eponymously named industrial giant. She reinforced his belief that business investments there would yield large returns. Nogara shied from German stocks, however, judging them too unstable.27 That was fortuitous. In October, only months after he had assumed his Vatican posting, the U.S. stock market crashed. Equities worldwide were hammered. Nogara pivoted from determining how to invest the church’s Lateran Pacts money to trying to safeguard its finances from calamity.
Nogara cited the Wall Street crash in advising Pius to reconsider the timing for his transformative redesign of Vatican City. The church, under a secret side deal with Mussolini, was already on the line for a 50 million lire contribution to a new fascist banking institution—the Istituto Centrale di Credito—dedicated to helping distressed Catholic credit unions and banks.28 But Pius was not persuaded by Nogara’s austerity pitch.29 So despite the stock market crash, the Pope approved the Vatican’s largest modern-day construction boom, what historians dub the “Imperial Papacy.”30
Nogara managed to get himself appointed to the committee responsible for overseeing the construction, hoping that he might be able to control the costs. It proved impossible. Nearly a third of the Lateran Pacts cash went to a mail and telegraph office, a train station, a power plant, and an industrial quarter composed of garages, shops, and factories.31 Courts and a prison were erected, the Catholic press got its own printing facility and offices, and a radio station opened.32 A two-year binge commenced of ripping out the small gardens and laying miles of pipes to irrigate lavish formal gardens planted with trees and exotic plants imported from five continents. A replica of the grotto of Lourdes was built. Small, centuries-old houses were demolished and replaced by extravagant new palazzos to house church officials, visiting dignitaries, and foreign diplomats.33
Pius also expanded the Vatican museums, adding a picture gallery and extending the library. The Pope built a wall around Vatican City, the first time it was physically separated from the rest of Rome. And when the Vatican announced it would abandon horse-drawn carriages, American auto companies stumbled over each other to see who could get free cars to Pius.34
Many of the new buildings—all prominently adorned with Pius’s personal coat of arms—were designed in the then popular neoclassical style.35 They seemed even more grandiose than the contemporary fascist buildings built as part of Mussolini’s plans for a majestic Rome. Some observers thought that Pius was competing with the fascist government’s imposing display of power. The British ambassador to the Holy See described the church’s new architecture as “disfiguring.”36
The Imperial Papacy was building more than simply a grander Vatican City. Over five hundred new positions were added to the Curia in the two years following the Lateran Pacts.37 None of this came cheaply. Nogara’s concerns about the possible fallout from Wall Street were prescient. The malaise that had started with the American stock exchange crash spread worldwide and infected far more than equities. Unemployment rates zoomed in industrial countries and manufacturing production plummeted. Mussolini grappled with Italy’s worsening financial crisis. He no longer had spare money with which to help the church. Moreover, as Italians grew increasingly concerned about the financial crunch, Mussolini sometimes distracted them by allowing his top officials to ramp up the polemics against the church, blaming Catholic trade associations for favoring their friends instead of pitching in to help ordinary Italians. An angry crowd torched a bishop’s palace in Verona. At least one fascist rally was punctuated with calls of “death to the traitor Ratti,” Pius’s name before he ascended to the Papacy.38
Pius was furious at the agitation caused by Mussolini. He considered it a breach of their treaty. The Pope had put his own reputation on the line inside the Vatican when he had assured critics that Mussolini was a trustworthy man. Pius issued a prominent 1931 encyclical, Non Abbiamo Bisogno (We Do Not Need), in which he censured the fascists for their cult of violence and veneration of the state.39,I “We do not fear,” he wrote about the bullying from Mussolini. But Pius avoided condemning the fascist state. He agonized over whether Mussolini might retaliate by reinstituting taxes against the church to make up for Italy’s fiscal shortfall.41 The public spat between the Pope and Il Duce was settled in another deal—this one secret—that further denuded the power of the Azione Cattolica (Catholic Action), the huge lay social organization founded by Pius X in 1905. The fascists feared its independence and unpredictability. It made no difference that the Lateran Pacts had promised to protect Catholic Action.42 In return, Mussolini pledged to tone down the attacks on the church.
The squabble between the Pope and Il Duce accelerated a precipitous drop in Peter’s Pence.43 Pius asked some well-off American dioceses, such as Chicago and New York, to advance Rome a loan against its future collections. They demurred. The request demonstrated how little the Pope appreciated the depth of the U.S. economic malaise. When Pius asked for money in 1932, unemployment in the United States was nearing an unprecedented 23.1 percent. Fear had frozen American Catholics from contributing to their own dioceses. There was no spare money.
In Britain, that same year, hundreds of thousands demonstrated in Hunger Marches, demanding work and food. Vatican documents reveal that instead of being concerned about the humanitarian crisis that forced so many to protest, church officials were oblivious to the dire state of affairs. Instead they fretted about whether the unrest might further cut the flow of funds from British Catholics to Rome.44
Nogara was so troubled about the impact of the church’s tumbling income that he persuaded Pius to cut employee salaries between 10 and 15 percent.45 And to raise extra cash, the Vatican christened 1933 a “Holy Year,” the twenty-fourth since Pope Boniface announced the first one in 1300. It resulted in a brief spike in pilgrims and donations.46
Nogara’s worst-case warnings about the consequences of the international financial downturn were realized.47 Another precipitous drop in the value of the British pound meant big losses for Vatican holdings there.48 Defaults on interest payments by Peru, Chile, Brazil, Greece, Hungary, Austria, and Bulgaria—all countries to which the Vatican had issued loans—meant more red ink. Even the huge international banking firm Kreuger & Toll failed to pay any return on the money the church had invested there.49,II In 1933, the Vatican lost its investment in the Missouri Pacific Railroad when that firm went bust. And the slide in the dollar further damaged its American holdings.51 By the end of 1933—the height of the Great Depression—the Vatican tallied losses of more than 100 million lire. Its annual revenues had slumped dramatically.52 The church did not have the money to help Catholic institutions stay afloat. By the end of the decade, seventy-four Catholic community banks had failed. It cost tens of thousands of ordinary Catholics more than a billion lire in lost deposits.53
The financial maelstrom did not cause Pius to lose faith in Nogara. He knew that without Nogara the church could be in worse shape. The grim international forecast convinced Pius to give Nogara autonomy he was unlikely to have ever had in more stable times. The Pope agreed not to exercise his traditional veto over money matters so long as Nogara was in place. It was an unequivocal signal not only about the frightening depths of the crisis but also evidence of the unrivaled scope of Nogara’s authority. Some in the Curia mocked Pius as “the Pope banker.”54 Even Nogara’s most entrenched opponents concluded that so long as Pius was Pope, he was untouchable.55
Nogara embarked on an investment strategy—radical by Vatican standards—intended to reverse the church’s downward spiral. He first turned to gold. Giuseppe Volpi, his longtime business colleague and friend, had just finished a three-year tenure as Mussolini’s Finance Minister. Volpi had returned the lira to the gold standard. He encouraged Nogara to accumulate the precious metal as a hedge for bad times.56 Over just a few months, Bernardino added $4 million in gold bars to the Vatican’s reserves.57 Next, he invested in real estate, something he thought less susceptible to the fluctuations of securities and currencies. The Depression had caused real estate prices to plunge, so there were many attractive deals for cash buyers. Nogara bought prime properties in France, Britain, and Switzerland.58 And he was at the forefront of a new strategy—arbitrage—in which he purchased government bonds from one country while selling a different batch in another nation, hoping to profit on the price fluctuations between them.59 It was risky and speculative, a practice still in its infancy, but promised significant profits if his hunches on price movements were right.60
The Vatican did not like to advertise its financial moves. Nogara hid the purchases. He put them through a network of holding companies. The chief one was Groupement Financier Luxembourgeois (Grolux S.A.), headquartered in Luxembourg.61 His choice of that country was no mistake.62 Just two years earlier Luxembourg had passed laws and regulations that made it an even more attractive investment haven than neighboring Switzerland and Liechtenstein. Funneling much of the money through Grolux meant that Nogara was assured inviolable confidentiality.63 Under Grolux Nogara established other foreign firms. Paris-based Sopridex managed the ASSS’s real estate in France. Lausanne Immobilier was his Swiss firm, and British Grolux ran the UK properties. To assuage the Papal financial advisors he had displaced, he stocked the boards of his holding companies with handpicked French, British, and Italian aristocratic Catholics.64
His foreign operations required special attention. Nogara established a small unit inside the ASSS to concentrate solely on those ventures. Each new person hired in that section had to be fluent in German, Italian, French, and English.65
Nogara was a longtime director of BCI, Italy’s largest bank, and also was on the board of a Swiss bank, Sudameris. He created another holding company so the Vatican could invest in those, and other, banks.66 And instead of relying just on Italian banks to move money, he used Maillardoz’s Union de Banques Suisses in Switzerland; Enskilda in Sweden; and Mees & Hope in the Netherlands.67 He tapped the House of Morgan in New York, London, and Paris to hold some of the church’s gold reserves, as well as hundreds of thousands of dollars in securities. Giovanni Fummi, a Morgan executive from a patrician Italian family, and an avid Mussolini supporter, became Nogara’s man on Wall Street.
Pius was pleased to learn of the Morgan involvement. Before he became Pope he had spent seven years directing the Vatican Library. One of his projects was restoring sixty Coptic fragments recovered from a thousand-year-old monastery. The Morgan Collection in New York had sent the fragments to Rome for restoration. Pius—then Monsignor Ratti—met repeatedly with J. P. Morgan, the patriarch of the New York banking dynasty. He liked the garrulous American, having no idea that the Episcopalian Morgan had once lobbied hard to keep a Catholic off Harvard’s board.68 When Nogara told him about the new relationship, Pius considered it a providential sign (Pius later bestowed on Morgan, and his CEO, Tom Lamont, the Grand Cross of Saint Gregory the Great for their extraordinary service to the church).69
While Nogara’s Vatican investments were international, he concentrated on Italy, the market he knew best. The Depression had battered many Italian firms. By the mid-1930s he had invested in Italian financial, utility, mining, textile, and property companies.70 And to watch over the investments, Nogara often served as a director for the acquired companies. He cultivated friendships with an expanding circle of business associates and politicians.71 Among others, he befriended Fiat’s founder, Giovanni Agnelli; Alberto Pirelli, heir to the country’s rubber monopoly; and the chairmen of two Italian insurance giants, Edgardo Morpurgo of Assicurazioni Generali and Arnoldo Frigessi di Rattalma of Riunione Adriatica di Sicurtà (RAS).72
Aftershocks of the Depression had caused an Italian credit crisis. The share prices of banks, including the Bank of Rome, Sardinian Land Credit, Banco di Santo Spirito, Credito Italiano, and even Nogara’s BCI, got hammered. The church’s long-standing investments turned into deep losses. So Nogara joined other bankers and businessmen and lobbied Mussolini to create the Industrial Reconstruction Institute (IRI), a government agency that would seize the shares of the ailing institutions and institute strict regulations to stave off a collapse of Italy’s banking system.73 Mussolini’s version of nationalization was to carve out a small role for private capital. He established the IRI—a hybrid of state nationalization with a private sector.
Nogara had his own plan for how the IRI might benefit the Vatican.74 He convinced the IRI to allow the church to redeem its shares in some of the nationalized banks at the full value for which the Vatican had purchased them.75 This allowed the church to avoid millions in losses and transferred the debt to the Italian Treasury.76 Nogara found other ways to capitalize on the banks’ hard times. As a director at many of them, and as a friend of the IRI’s fascist directors, he often knew in advance which banks would get the government’s biggest capital injections. Armed with that insider knowledge, Nogara invested Vatican money in those few that managed to emerge from state control.77,III
Nogara also found opportunity in a fascist holding company for the distressed oil and gas industry. He managed to get the inside track on the one major private firm, Italgas, a leading natural gas conglomerate, in which the fascists decided to sell a majority stake. As a BCI director, Nogara had taken part in Italgas’s bailout and he served on the government holding company in which the company’s shares were held. When Mussolini finally approved the sale, Nogara and his Black Noble partners—led by Marquis Francesco Pacelli (the brother of the future Pius XII)—managed to take a majority stake for less than a quarter of its market value.79 Italgas turned into one of the church’s most profitable investments.80
And as he had done before with Grolux, Nogara selected prominent Catholic laymen to serve on the boards of the rescued banks and companies, all of whom eventually received Papal titles and decorations.81 Over several years, those handpicked directors expanded their influence as they served on interlocking boards for many of Italy’s largest firms.
Nogara later swapped some of the Vatican’s ownership in a few of the reconstituted banks for IRI bonds paying 5 percent interest.82 The investment in fascist-issued bonds was not only a good deal for the Vatican, but it further tied the church’s economic health to the Italian state. By 1935, with the exception of farming, there was no sector of the Italian economy in which the Vatican did not have a significant investment or ownership interest.83 Only Mussolini’s government owned more than the Vatican.
Fascist politicians and businessmen served on many of the company boards in which the Vatican had a stake, putting fascist and church representatives at the same decision-making table in key industries. This commingling meant the Vatican had every reason to maintain at the minimum a benign political tolerance for Mussolini’s regime. In many respects that was not difficult. Il Duce was refreshing compared to the anticlerical mixture of socialists and freethinkers who—to the church’s great detriment—had played significant roles in Italian politics since the late nineteenth century.84 And the church did not have to make any compromises when it came to fascist social policies. Mussolini’s insistence on public morality, belief in the inferior role of women, and the ban on contraception and abortion made the fascists palatable to the church.85
Equally important was that Mussolini’s anticommunist stance was comforting. The Vatican feared godless bolshevism far more than it detested fascism. Pius had come to despise communism during his tenure as Poland’s Nuncio.86 And his Cardinal Secretary of State, Eugenio Pacelli, had been the target of an unsuccessful assassination by a communist cell when he was Germany’s Nuncio. Pacelli had an equally hard-line view.87 Both men knew that the Soviets had not just declared a rhetorical war on organized religion. In Russia the state waged a bloody war against all faiths, jailing or murdering the clergy, destroying churches or turning them into atheist museums, and banning any teaching of God to children under the age of sixteen.88
While the Vatican and Mussolini were cementing their de facto partnership, Pius issued three encyclicals on economic and social issues.89 Each reiterated a condemnation of unbridled capitalism and the accumulation of great wealth by a few, as well as decrying as “deadly” international finance and its focus on profits. He denounced capitalists “addicted to excessive gain.”90 Medieval dogma declared money itself was an unproductive pursuit. Loaning money at interest was immoral. Pius was the first Pope in decades to restate that dogma so forcefully: “The desire for money is the root of all evil.”91
Those encyclicals puzzled Italians in the private sector who were doing business with the church. What the Pope said would have precluded many of Nogara’s investments. But only a handful of ranking clerics knew that before Nogara had accepted Pius’s appointment at the Vatican, he had made it clear he would do so only if his work was not restricted by religious doctrine. Nogara had also insisted he should be free to invest anywhere in the world, no matter what the country’s politics.92 And while some in the Curia grumbled that Nogara’s financial speculation violated the church’s core values, so long as the balance sheets showed surpluses, Pius and his chief advisors were pleased.93 It was also somewhat easier for officials to give wide latitude to Nogara since he was a layman.94
Nogara’s freedom paid off. His diversification stabilized the church through the Great Depression. An unintended consequence of his investments was that as the worldwide financial crisis began easing, the Vatican and Mussolini were thoroughly entwined.
I. After World War I, Italian intelligence had penetrated the Vatican with clerical informants and lay agents, ranging from cooks to footmen to policemen. They focused not just on politically significant information, but also on compiling compromising dossiers on the sexual predilections of top clerics. Such dirt was also useful as blackmail. One of the few matters about which the informants failed to provide advance notice was Pius’s 1931 antigovernment encyclical. Mussolini shook up his intelligence agency’s leadership so he would not again be surprised.40
II. Kreuger & Toll collapsed when it was exposed for having perpetrated one of the largest twentieth-century frauds. The Vatican was merely one of hundreds of institutions swindled. The company’s Swedish chairman, Ivar Kreuger, known as the “Match King,” killed himself after his company’s deceptions were revealed. (The Kreuger family, and some subsequent authors, have contended the suicide was, in fact, murder.)50
III. In the 1930s, Italy had the largest state ownership of companies other than the Soviet Union. At the end of Mussolini’s reign in 1943, 80 percent of all Italian banks were still under IRI control.78