Vatican economics

Among the figures adding to the noise of commentary following the credit crisis has been the Pope himself. Benedict XVI told an assembly of Bishops earlier this month that “He who builds only on visible and tangible things like success, career and money, builds the house of his life on sand”.  It is not his first intervention on the subject of economics -- he has previously discussed fuel price inflation (due to the impact on food bills for the poor, and on account of the wars triggered in pursuit of oil) and the negative impact of consumerism. With the centre of gravity of the Church shifting southwards issues such as economic redistribution are impossible for the Pope to avoid, though given his doctrinal opposition to left-wing ‘liberation theology’ in the past Benedict XVI must tread a fine line in debate over social policy.

As well as being an observer of the financial crisis, the Vatican is also a participant, as Bloomberg notes. Much of the Holy See’s income is derived from around 1 billion dollars in equities, cash and real estate holdings. The president of the Vatican bank’s supervisory council explains it has steered clear of complex derivatives (perhaps conscious of its travails in the 1980s, when it was the main shareholder in a collapsed Italian bank). However, even if the Vatican’s deposits are safe, income is likely to be reduced. As donations from the developed world have fallen, the Vatican has grown increasingly dependent on investment income to finance its staffing and activities. The weak dollar has reduced the value of US contributions, helping to create a 14 million dollar deficit in 2007. If it has to draw more heavily on donations to funds its operations, the charitable works might have to be curtailed.

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