VATICAN CITY

MONETARY UNIT:

Vatican lira. One lira equals 100 centesimi. There are coins of 10, 20, 50, 100, and 500 lire. The Vatican lira is at par with the Italian lira, which also circulates as valid currency within the Holy See. Conversely, Vatican coins—similar in value, size and denomination to those of Italy, but carrying an image of the head of the Pope—are legal tender in Italy, and in San Marino, another tiny city-state in Italian territory. Despite this reciprocal arrangement between Italy and the Holy See, their monetary systems are separate.

GROSS DOMESTIC PRODUCT:

Despite having no balance of trade figures, the Holy See registers a gross domestic product (GDP), which was estimated at US$21 million for 1999. The singular nature of the Holy See's economic structure has yielded considerable sums of money. In 1997, the CIA World Factbook recorded state revenues of US$209.6 million, against expenditures (including capital outlays) of US$198.5 million, thus registering an impressive budget surplus of US$11.1 million.

BALANCE OF TRADE:

The Holy See imports almost all agricultural produce and other foodstuffs and all manufactured goods from Italy, which supplies all its water, gas, and electricity. It has no agricultural or industrial sectors and exports nothing. It therefore has no balance of trade statistics.

COUNTRY OVERVIEW

LOCATION AND SIZE.

A Southern European state, the Holy See, or State of the Vatican City, is a landlocked urban enclave, situated entirely within the Italian capital city of Rome, which forms its only borders. With an area of only 0.44 square kilometers (0.17 square miles), it is approximately 0.7 times the size of The Mall in Washington, D.C. Outside the Vatican's walls, in Rome itself, is the Pope's summer residence, Castel Gandolfo, together with 13 other buildings that belong to Vatican City and fall under its jurisdiction. The length of the country's border, formed by medieval and renaissance walls except for St. Peter's Square in the southeast, is 3.2 kilometers (2.0 miles). The state, city, and capital are one and the same.

POPULATION.

In July 2001, the population of Vatican City was estimated at 890, with an estimated growth rate of 1.15 percent. The birth rate is extremely low by the very nature of the Holy See, which exists primarily as the center of authority over the Roman Catholic Church throughout the world. Its citizenry is, therefore, largely ecclesiastical (relating to the Church), supplemented by (often elderly) officers and servants of the Church. However, other dignitaries, as well as priests, nuns, guards, and some 3,000 lay workers actually reside outside the Vatican. There is no such thing as Vatican nationality, although rights of citizenship are conferred on non-Italians, such as members of the Swiss Papal Guard who are the traditional sentries at the city gates. Passports, issued by the Holy See rather than the Vatican state, are for diplomatic purposes only, and possession of a Holy See diplomatic passport does not automatically entitle the holder to rights of entry, residency, or citizenship.

The official language of the state is Italian; the Papal Guard's language, which is made up of Swiss nationals, is German. Several other languages are spoken, and the official acts of the Holy See are documented in Latin.

OVERVIEW OF ECONOMY

The Holy See, often referred to as Vatican City or simply the Vatican, is the seat of the Roman Catholic Church and its ruler, the Supreme Pontiff or Pope. The Holy See is not only the world's smallest independent state, but the workings of its government and financial affairs are unique, as are its non-commercially based economic structures, which do not conform to any conventional pattern. It is therefore not possible to examine or analyze the economy in terms of the usual sectors.

There is much confusion regarding the country's names, the Holy See and Vatican City. According to the country's permanent mission to the United Nations, the term Vatican City refers "to the physical or territorial base of the Holy See, almost a pedestal upon which is posed a much larger and unique independent and sovereign power: that of the Universal [Catholic] Church. …The State of Vatican City itself . . . possessed a personality under international law and, because of such, enters into international agreements. However, it is the Holy See which internationally represents Vatican City State." Since 1957, most agreements have been entered into by the Holy See as the supreme authority of the Catholic Church. The Holy See, then, refers to the governing bodies of the nation, while the term Vatican City refers to the physical nation.

The Holy See generates its substantial wealth through worldwide donations to the Church. These voluntary contributions are made by individuals of the Roman Catholic faith, and are known as Peter's Pence. The term dates back to the 8th century, when the custom of collecting money for the Church originated in the early English kingdom of Wessex, which imposed an annual tax of 1 penny (or pence) on each family to send to Rome. The custom spread, and nowadays, the largest sums are given by Catholics in the United States.

The Holy See has a special department to administer the funds that arrive annually and to distribute them according to the needs of organizations, charities, and individuals. However, because there are no rules governing when, how, or how much money is sent—or spent—it is not possible to give an accurate assessment of this income.

Additional revenues flow in from the massive number of tourists who visit the Vatican, and from international banking and financial activities that yield interest from substantial investments worldwide. A handful of small light-manufacturing enterprises within the state cater to particular domestic requirements such as printing of church publications, the production of uniforms for Vatican staff, the manufacture of religious mementos and mosaics for the tourist market, collectible items such as stamps and coins, and Vatican telephone cards.

Although the Vatican has never developed or promoted an organized tourist industry, tourism contributes significantly to the economy of the tiny state. The Vatican is one of Europe's outstanding tourist attractions. The city is rich in history and priceless cultural treasures, and its unique geographical location makes for its effortless inclusion in the itinerary of any visitor to Rome. Aside from the Basilica of St. Peter's, visitors flock to the Sistine Chapel, whose magnificent ceiling frescoes by the Renaissance artist Michelangelo have been restored, and to the extensive Vatican museums and libraries. Substantial sums come from tourists' purchases of souvenirs (most of them religious in nature), postage stamps, coin issues, and publications, and from admission charges to the Vatican museums, which can accommodate 20,000 visitors daily.

The sale of stamps, in particular the sale of special series to stamp dealers and collectors, has turned into a sizable enterprise since these have great appeal and increase in value within weeks of their issue. A limited number of each series is sold to private dealers and collectors who place advance orders, and the rest to religious orders and other church institutions, which, in turn, sell them on to dealers at a handsome profit. Thus, both the Holy See and the Church as a whole derive considerable gain from the trade in stamps.

State expenditure relates to the maintenance of buildings and infrastructure, the financing of foreign visits made by the Pope or his emissaries, the running costs of diplomatic missions and overseas offices, financing of charities, and the publication of the state's newspaper, L'Osservatore Romano .

POLITICS, GOVERNMENT, AND TAXATION

The Holy See is a monarchical-sacerdotal state, which is to say that it operates as a monarchy in which the Pope is the "king" (monarchical), with senior members of the church hierarchy, appointed by the Pope, as the governing body (sacerdotal). The Pope himself is elected from candidates worldwide by 120 members of the College of Cardinals and is the chief of state as well as head of the Church. Appointed to office for life (the Polish cardinal, Karol Wojtila, became Pope John Paul II in 1978 and was still on the throne in 2001), the Pope has supreme executive, legislative, and judicial power over both the State of the Vatican City and the universal Roman Catholic Church. Given the wide scope of the Pontiff's authority, an intricate and complex structure of official agencies has been established to administer power within carefully designed categories. This structure is commonly known as the Roman Curia and its members are appointed and granted authority by the Pope.

The Holy See is recognized under international law and enters into certain international agreements, but, strictly speaking, it is not a civil state operating under civil laws, but an absolute monarchy in control of the Roman Catholic Church, ruling according to the Apostolic Constitution of 1967. It is as the Holy See rather than the State of the Vatican that the country sends and receives diplomatic representatives to and from around the world. The head of government, generally a cardinal or archbishop whose appointment and authority is conferred by the Pope, is the secretary of state. He presides over the Pontifical Commission, or cabinet. The legal system governing church matters is founded in canon, or ecclesiastical, law but judicial matters outside the Church are dealt with by the Italian judiciary in Rome.

There are no political parties in the country, but all cardinals under the age of 80 have the vote in electoral issues within the Church. Internally, the Swiss Guard has been responsible for the personal safety of the Pope since 1506, but in reality, its function is ceremonial and policing of the state is left to the Civil Guard. There is no military arm, and Italy takes responsibility for defense.

There are no taxes, no restrictions on the import or export of funds, and no customs or excise duties payable in the Vatican City. Employees of the Vatican pay no income tax and no customs duty on gasoline or goods that they buy in the Vatican. Non-Italians enjoy allowances on their monthly salaries.

The Holy See is a member of numerous international organizations and institutions, such as the International Telecommunications Satellite Organization (Intelsat), the Organization for Security and Co-operation in Europe (OSCE), and the United Nations High Commission for Refugees (UNHCR), although its status is sometimes that of an observer only. The Holy See is especially active within the framework of the United Nations (UN) and has permanent observer status at the UN's New York headquarters and Geneva offices. This also includes specialized UN branches such as the Food and Agriculture Organization in Rome, and the Educational, Scientific, and Cultural Organization in Paris. The Holy See has a member delegate attached to the International Atomic Energy Agency and the UN Industrial Development Organization in Vienna, and engages in diplomatic relations with the European Union (EU) in Brussels.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Vatican City has a heliport connecting to the Rome airport for the convenience of foreign visitors, and an 862-meter (about half a mile) rail track that connects to the Italian network at Rome's Saint Peter's station. This is used solely for carrying freight.

Regular telephone services within the Vatican began after it gained independence in 1929, when a number of telephones were installed via Rome's urban network to link various Vatican offices and residences. The state's first central telephone exchange, donated by American Catholics, was installed in 1930 and provided telephone service to approximately 360 end users. In 1960, this exchange was replaced by a new exchange with a capacity of 1,500 numbers, later expanding to 3,000. In June 1992, the Vatican's third central exchange was inaugurated, providing the city with a highly advanced state-of-theart network, connecting 5,120 terminals, via optic fiber, to TelecomItalia's network and a radio link to extra-territorial zones.

The Vatican has its own post office, pharmacy, publishing house, influential radio station (Radio Vatican broadcasting throughout Europe), an Internet web site, an important observatory that hosts international astronomers' conferences, and a unique banking system that is central to the finances of the state.

SERVICES

There is no conventional service sector in the Holy See although, quite obviously, public service is provided by retail sales people, museum attendants, and other workers necessary to the smooth operation of the city. Financial services provide the most significant economic component of the sector, but again, they operate primarily to generate wealth for Church and state, benefitting only a few handpicked individuals outside of this. No opportunities for private business organizations or enterprises to operate independently are provided within the Vatican's confines.

The Administration of the Patrimony of the Holy See (APSA) manages the Holy See's cash and investments, including its patrimony and pension fund. There is a growing demand for public financial reporting, and Pope John Paul II has partly met this demand. A report, Consolidated Financial Statements of the Holy See, is prepared by the president of the Prefecture for the Economic Affairs of the Holy See, who acts as the Pope's treasurer. This report, however, only reveals details of the financial administration in the Holy See, a partial disclosure that conceals details of other accounts such as the Vatican Bank and the Vatican City State. It is known, though, that about half the income of the Vatican City State is used to help finance the Holy See.

The heart of the Vatican's finances is the Vatican Bank. The bank's official designation is that of The Institute for Works of Religion (IOR), a title that reveals its original purpose as a body charged with the financing of religious works. However, the Vatican Bank has evolved into a major financial institution, responsible for the investment and administration of all state funds, as well as dealing with the banking requirements of church officials, diplomats, and other servants of the state. The bank is not open to any individuals or corporations outside Vatican City.

The Holy See engages in substantial investments worldwide, which yield huge revenues in interest payments. Details of the state's financial activities tend to be shrouded in secrecy, but it is known that the main avenues of investment are banking, insurance, real estate, utilities, and building. The Holy See also has financial interests in the lucrative production of flour and spaghetti. Investment is largely directed towards companies that cater to basic human needs and are thus fundamentally sound, which contributes to the state's reputation as a prudent investor.

Apart from shares in private enterprise, the Holy See holds a large amount of government bonds and debentures ( titoli and obbligazioni), and derives a percentage of its income from the rentals of apartments and shops. It owns several thousand hectares of land including some valuable building sites, particularly in the vicinity of Rome, and has gold reserves in Fort Knox.

POVERTY AND WEALTH

While it is not known how much personal wealth Vatican citizens have, the state is free of poverty. Although it is the smallest of all countries in terms of population, its estimated GDP per capita of $21,198 makes Vatican City the 18th wealthiest nation in the world per capita. Health and pension provisions are good, and average incomes and living standards of lay workers are generally comparable to—and in some cases, better than—those enjoyed by employees in Rome. No individual, whether or not they are a citizen of the Vatican, may own land within the borders of the state because it is the private domain of the Holy See.

Several hundred lay persons are engaged in secretarial, domestic, trade, and service jobs in the Vatican. The working week is reasonable, although high officials of the Secretariat of State keep longer hours then many senior business executives in other countries. Workers in the Vatican benefit from the numerous religious holidays, and Italians who work in the Holy See are exempt from military service. Swiss Guards are paid a relatively low salary, but are usually young men with private incomes. Civil Guards have higher salaries plus family allowances.

The most highly paid Vatican officials are the cardinals of the Curia. Immediately after appointment to the Curia, a cardinal has two-thirds of his first month's plate (as his salary is known, from the days when he was paid with gold and silver coins presented on a silver plate) deducted and kept aside for his funeral expenses.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

The papacy has a very long and complex history, dating back to medieval times. Over the centuries, successive popes came to rule in Papal States across Europe (notably in France) as well as taking control of much of Italy in a secular as well as religious capacity for 1000 years. The present-day Italian capital of Rome was the capital of the Italian Papal State. In the 5th century, the Emperor Constantine I built the Basilica of St. Peter's. After this, Pope Symmachus built a palace nearby, but this did not become the Papal residence—the Vatican Palace—until 1377 when the papacy returned from its period of exile in Avignon, France.

It was from this time that a succession of popes— most notable among them Sixtus IV, Innocent VIII, Alexander VI, Leo X, and Clement VII—proved to be committed patrons of the arts, and were variously responsible for building and stocking the magnificent libraries and museums that can be seen today. From the 17th to the 19th centuries, the Papal residence was transferred to the Quirinal Palace, later Italy's royal palace, and now the official residence of the Italian president.

Papal rule ended with the Unification of Italy in 1870, when Victor Emmanuel became king of Italy, and the Papal territories, including Rome, were incorporated into the newly formed Italian state. The papacy retreated to the Vatican, where a succession of popes disputed their position with the Italian government.

In 1929, the Italian government and the Holy See finally reached agreement and signed a treaty recognizing the independence of the Holy See and creating the sovereign State of the Vatican City. Under this agreement, known as the Lateran Accords, the Italian government also awarded the Vatican 750 million lire in cash and 1 billion lire in government bonds as partial compensation for the papal territories annexed by Italy during the process of unification.

In 1984, a major reshuffle of offices in the Roman Curia resulted in the delegation of the routine administration of Vatican City to a pontifically appointed commission of 5 cardinals headed by the Secretariat of State.

FUTURE TRENDS

Despite the importance of the papacy to the Catholic Church and its role in international affairs, the Holy See's internal workings are little known to Catholics, to world leaders, or to the public at large. The Vatican Bank was the focus of several major financial scandals during the late 1970s and early 1980s, and while much effort has gone into repairing the damage to its reputation, the Vatican may well have to address public disquiet at its secrecy.

The question of who succeeds Pope John Paul II must, as with any papal succession, lend uncertainty to the Vatican since each successive pope rules according to his own principles. Perhaps the major cause for concern, therefore, is whether the papacy learns to adapt far more radically than it has done in the past to the huge changes in society at large. Increasingly, modern-day Catholics are finding the Church stance on issues such as birth control repressive, and if the Church is to retain the loyalty of its billion followers, it will have to modernize certain of its practices.

DEPENDENCIES

Vatican City has no territories or colonies.

BIBLIOGRAPHY

Bull, George. Inside Vatican. London: Hutchinson & Co. Ltd., 1982.

Coppa, Frank J. Encyclopaedia of the Vatican and Papacy. London: Aldwych Press; Westport, CT: Greenwood Press, 1999.

The Holy Father. <http://www.vatican.va/phome_en.htm>. Accessed October 2001.

Holy See Mission: The Permanent Observer Mission of the Holy See to the United Nations. <http://www.holyseemission.org>. Accessed October 2001.

Hutchinson, Robert. When in Rome: An Authorized Guide to the Vatican. London: HarperCollins, 1999.

Pallenberg, Corrado. Vatican Finances. London: Peter Owen, 1971.

Tully, S. "The Vatican's Finances." Fortune. 21 December 1987.

U.S. Central Intelligence Agency. World Factbook 2001. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed September 2001.

U.S. Department of State. Background Notes: The Holy See, July 2000. <http://www.state.gov/www/background_notes/holysee_0007_bgn.html>. Accessed October 2001.

—Olga Kuznetsova