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  And who owed him more than Calvi, whom he had helped so much? The chairman of Ambrosiano had after all continued to thrive; while his bank had ample resources to settle the liabilities of Banca Privata Italiana, and thus enable its liquidation proceedings to be halted.

  For that second consideration was by 1977 becoming steadily more important. A lawyer called Giorgio Ambrosoli, who had been appointed by the central bank in Rome to carry out the liquidation of Sindona's Italian interests, was moving painstakingly towards the truth about some of the most questionable business channelled through his banks, including transactions involving the political far right in Europe and beyond, and the Mafia. In America, meanwhile, Watergate and the fall of Nixon and Sindona's Republican party friends, had brought a new moralistic president to power, in the person of Jimmy Carter. Less chance than ever existed of persuading United States investigators to look kindly on the demise of the Franklin National Bank.

  That summer Sindona and his lawyers held what amounted to a council of war in New York, to examine how his erstwhile allies in Italy might be induced into working for a "technical" solution to his difficulties at home. The natural first choice was the Banco di Roma, still influenced by the Christian Democrats. Failing that, however, Calvi should be summoned to give assistance.

  Evidently they made little progress with the Banco di Roma, for Sindona soon turned his attention to Calvi—but at first to small avail. Either (mindless of how Sicilian potentates can react when an earlier favour is not repaid) Calvi mistakenly calculated that Sindona was a spent force, who could be safely ignored; or he judged that the risk was too great in a venture of that kind, in reforging links with one whose downfall in 1974 had brought himself perilously close to the precipice. Perhaps both considerations played a part. But Sindona was outraged at such abandonment by an indebted friend, and he plotted spectacular revenge.

  The chosen instrument was another of those strange condottieri who feature in the Calvi story. Once Luigi Cavallo had been a Communist, and a resistance fighter in the Second World War, but for many years now his prime employment had been as an agent provocateur at the service of the highest bidder. In the 1950s Fiat had employed him to set up docile in-house trade unions to counter the influence of the increasingly militant ones outside. Cavallo was said to collaborate with a variety of secret services. Above all, he was a practised execu­tor of smear campaigns against pre-selected targets in the Italian financial world. The campaigns, one must presume, were paid for by former colleagues of the victims, who considered themselves betrayed. For Cavallo usually appeared to be well supplied with documents.

  Probably for reasons of his own safety, he resides these days in Paris. But his mouthpiece was (and still is) the so-called Agenzia A, based in Turin. Periodically, Agenzia A would come to life, as a smartly printed pamphlet containing the detailed accusations of the moment. It would be distributed, free of charge, to potentially interested readers such as magistrates, financiers, politicians, as well as journalists. No matter that the contents were unreliable, and obviously far too delicate to publish. Suspicions would be kindled, often to be proved not entirely inaccurate, should the particular episode subsequently gain public notoriety.

  For Calvi, however, Sindona and Cavallo devised something even more unnerving, given the secretive nature of their target. Purported details of all Calvi's most unmentionable dealings with the Sicilian would be provided for the general Milanese public to see.

  November 13,1977 had gone down in the city's financial legend as the "day of the tazebao". That morning central Milan, and in particular the crowded tiny streets around the headquarters of Calvi's bank, resembled Peking, as scores of posters, printed in white, blue and yellow appeared overnight from nowhere, plastered on available walls. No matter that Calvi, as usual in his office early, managed to have them down before mid-morning: the damage, above all psycho­logical, had been done.

  The banker can only have been horrified by his public denuncia­tion. The posters claimed that he had arranged to have "tens of millions of dollars", stemming from ventures with Sindona, paid into Swiss bank accounts held by himself and his wife. After the unsuc­cessful Bastogi takeover bid, Calvi had, in the words of the poster, "appropriated for himself" $4.8 million. On November 11, 1972, he had received $3.3 million as a personal commission on the Pacchetti/ Banca Cattolica del Veneto transaction. The money, the posters alleged, had been paid into accounts bearing the code names of Ehrenkranz and Ralkov G 21, at the Zurich branch of Credit Suisse, and into numbered accounts 618934 and 619112 at the Chiasso (Switzerland) branch of the Union Bank of Switzerland (UBS). Three questions had to be answered, the charge sheet continued: first, from where did Calvi obtain the $200 million he had used to buy control of his companies? Second, how big a profit did he make on selling their shares around the Ambrosiano group? And thirdly, why did the Corriere della Sera never mention the misdeeds (including illegal currency exports, tax evasion and falsified balance sheets) of "its effective owner"? Each of the demands would prove to be farsighted. And in case they had escaped notice, copies of Agenzia A containing further details were distributed a few days later.

  Understandably, and with the good offices of Licio Gelli, Calvi hastened to make peace. According to Sindona's lawyers much later, Calvi consented to provide money for both him and his family. Shortly afterwards, $500,000 passed from Calvi to Sindona, camouflaged by a spurious transaction purporting to cover the sale of a luxurious villa in Northern Italy. As an additional precaution, the movement of Ambrosiano shares into Panama accelerated.

  Unfortunately for Calvi, however, Cavallo had also delivered a sep­arate attack, which no amount of money would be able to ward off.

  On November 24,1977, he wrote a lengthy letter to Paolo Baffi, who had replaced Carli as Governor of the Bank of Italy in the summer of 1975. He reminded Baffi of an earlier letter to the central bank, in which Cavallo had enclosed photocopies of documents containing apparent evidence of Calvi's secret accounts in Switzerland. The new letter listed all the accusations which had figured in the Milanese tazebao. Cavallo ended with the threat that if the Bank of Italy did not now move against Ambrosiano, he would sue it for failing to carry out its legal duties.

  It was not Cavallo's letter alone which prompted Baffi to act, although it was another reason for further scrutiny of Ambrosiano after its rapid expansion of the last few years, and the accompanying rumours, few of them very complimentary. Senior officials at the central bank were at least equally disturbed by first a telex, and then a letter, from Cesare Merzagora—who had written to Carli as long ago as 1972 about Ambrosiano. This time the gist was the same, but the wording still more alarmed: how could the Bank of Italy tolerate any longer what Calvi was doing? Baffi gave the go-ahead for a full scale inspection of Banco Ambrosiano. On April 17,1978 a team of twelve inspectors arrived in the pink-fronted building on Via Clerici, and although no-one could have said so then with certainty, the fate of Roberto Calvi was sealed.

  CHAPTER TEN Inspection

  The Bank of Italy is a most remarkable institution. Visitors should not be misled by the row of tall palm trees outside, which lend an oriental flavour to the heavy nineteenth-century of its headquarters and muffle the din of the traffic on the Via Nazionale. The central bank is arguably the most professional and West-Europeanized part of the apparatus of the Italian State. To foreigners, indeed, it has often seemed the Italian State.

  A central bank anywhere is a venerable and dignified organization , of great and, above all, discreet authority. In Italy, where Govern­ments and Treasury Ministers come and go with disconcerting fre­quency, and where economic crisis—in recent years at least—has been a constant, this is doubly true. Since the end of the Second World War alone, the country had had 43 Governments by mid-1983, each with an average life of slightly over ten months. The Bank of Italy, on the contrary, has been headed by just seven Governors this century, fewer even than there have been Popes on the throne of St Peter. More oft
en than not, they have reflected the older liberal, "lay" aspirations of the founders of the modern Italian state.

  During the early 1970s, as deficit followed deficit and a new financial crisis tumbled upon the last, the central bank was regarded abroad as the guarantee of Italy's credit worthiness as a borrower. The high calibre of its officials, with their pronounced esprit de corps and familiarity with foreign languages, set it apart from the rest of Italy's decrepit institutions. How remarkable it was, Pushkin once observed of the Russian language, that so backward a people could produce so sophisticated a means of expression. The same was said of the Italian State and the Bank of Italy. In those years too, as the country moved politically leftwards, and the Ambrosiano/IOR scan­dal was undreamt of, the common witticism ran that only three institutions worked on Italian soil: the Communist party, the Vatican and the Bank of Italy.

  Sometimes the Bank would straddle the paradoxes of modern Italy. At home it would be trying to block, with mixed success, the various routes an ingenious people had devised to export capital— whether by fiduciary aicount, suitcases of cash at the IOR, or motorboats plying across Lake Lugano. But in the monetary meet­ings abroad which then abounded, the Bank of Italy would be presenting elegant schemes to tackle more esoteric problems, dealing with the dollar "overhang", and currency "snakes", "crawling pegs", and "baskets".

  If the Bank of Italy is so flatteringly perceived abroad, its prestige at home is no less. Its authority stems not merely from the breadth of its powers, but from its evident neutrality and independence, and aloofness from the political fray. And nowhere are the powers broader, yet more carefully to be exerted, than in the Bank's duty of superintending the domestic banking system.

  In statistical terms alone the task is daunting. The central bank presides over a ragtag army of no less than 1,060 individual banks. They range in size from internationally known institutions like the Banca Commerciale or Credito Italiano, controlling funds of $25,000 million or more, to the tiniest monte di pieta, which centuries ago had started life as a pawnbroker's, and today might boast a single branch in a small town. All of them, though, have to comply with strict regulations imposed by the Bank of Italy. To ensure that they do so, the Bank's vigilanza, or supervisory department, will carry out up to 150 inspections annually, meaning that every bank, large or small, will have its books gone through every seven or eight years.

  But from the mid-1960s on the job acquired an added political sensitivity. The banks were becoming sources of finance, above and below board, for the political parties; especially the Christian Demo­crats, but later, as Ambrosiano showed, for other parties as well. The public sector banks, controlling 70 per cent of total deposits and their chief executives political appointees, were the first obvious targets. But Michele Sindona was by no means the first private banker who showed how political support might be purchased. The banks moreover would help finance the rival empires built in those years by politically sponsored industrialists. It was the era of Italy's "chemical war", in which hundreds of billions of Lire were squandered on large and little-needed new plants, by flamboyant figures like Nino Rovelli of SIR, and Raffaele Ursini of Liquichimica. All was paid for by cheap loans from the State, channelled through a compliant banking system.

  As the parties' appetite for funds increased, to finance their ever more unwieldy machinery of patronage, so did political interference in Italy's entire economic system. A master of the process was Eugenio Cefis from ENI, with his coup d'etat at Montedison; but later others like Licio Gelli and Michele Sindona easily found accommoda­tion within it. Inevitably, the Bank of Italy's inspectors were in­creasingly prone to uncover secret irregularities—and increasingly pressed to turn a blind eye to them.

  During his long reign as Governor, from 1960 to 1975, Guido Carli did act to remove the worst abuses. His hostility played a large part in Sindona's downfall, as we have seen, but he has subsequently been blamed for not having done more. That is certainly unfair. If he was to move against a financier with the political connections of Sindona, Carli had to ensure that his own flanks were protected. Impercept­ibly, he became as much a mediator as a judge; and unconsciously the Bank of Italy became an accomplice to the political warefare. Carli probably enjoyed this role. He is a suave, worldly figure, of the keenest intellect, and fond of dissertation. He had a natural taste for power, and feel for the political eddies. In Britain Carli could be easily imagined as a Secretary to the Cabinet, not infrequently disdainful of the politicians whom theoretically he served. The same could not be said of his successor Paolo Baffi.

  The transition from Carli to Baffi at the time seemed completely unexceptional. The Bank of Italy's preference for the "internal solution" had been respected. Baffi moved up from the post of general manager to become Governor in the summer of 1975, during a brief lull in the almost permanent financial crisis of those years. His international standing matched that of Carli; but in many respects the two differed greatly.

  If Carli adjusted comfortably to the politicians, Baffi did not. Born of humble family, he remains a most private man, of simple habit. He had spent his entire career at the Bank of Italy, which he joined in 1936. When he was Governor he preferred his unpretentious villa at the seaside resort of Fregene, 20 miles from Rome, to the grace-and- favour apartment in the capital which went with the job.

  If a label is to be attached to Baffi, it is probably that of liberalism of the old school. Sound money, a limited role for the state and the free movement of capital and goods are among his cardinal beliefs. The best answer for Italy's economic problems, he has been heard to theorize, would be the abolition of exchange controls. Baffi has been called "a central banker's central banker", and few have won such widespread esteem. Under his guidance Italy staged an astonishing economic recovery between 1976 and 1979. His skilful handling of the lire's entry into the European Monetary System in 1979 was univer­sally praised.

  Baffi had also a lifetime of financial scholarship behind him. To be received by him made many visitors feel like inadequately prepared students before a kindly but slightly irascible professor—rendered still more intimidating by a machine-gun-like voice, and thick black spectacles perched owlishly across his nose. Baffi, in short, was everyone's idea of a central bank Governor. Except that is, for some of the politicians for whom he had little time.

  Under him, and in charge of the supervisory department, was Mario Sarcinelli. His career, too, had been exceptional. Sarcinelli had joined the central bank in 1957 at the age of 23, with a special scholarship. He served in the research department, the traditional nursery for potential high-flyers. By the time he was 42, he had been promoted to the rank of direttore centrale, with responsibilities on the supervisory side. In this post, too, Sarcinelli performed outstand­ingly, and in 1976 was appointed one of the Bank's two deputy general managers, and a member of the four-man "directory" at its summit, along with the general manager and the Governor. Many felt that Sarcinelli would one day be Governor himself.

  Italy by 1978 was on the way back to economic health, at least by its own standards. Foreign bankers spoke no more of the "Italian risk", and that year, aided by Baffi's judicious management of the exchange rate, the country recorded the largest balance of payments surplus of any major nation. But an important contributory factor was the tight credit policy enforced by the Bank, and Baffi's lack of sympathy for the industrialists who, with the aid of their political patrons, had prospered on the State's largesse.

  Requests for funds, so readily available in the past, were coldly met. And chief among the victims of the stern nouveau regime was the chemical industry, bloated by the illusion of cheap, pre-Yom Kippur oil and the complaisance of the politicians. SIR and Liquichimica collapsed, and even the formidable Cefis was forced to leave Monte­dison. But this rigour earned the 67-year-old Baffi enemies; and he and Sarcinelli were to make more for the unforgiving way in which Bank of Italy inspectors were despatched into financial institutions most entangled with the
politicians. No-one any longer was exempt. The inspectors went through the books of the banks of Pesenti, exposing the dubious means by which he had extricated himself from Sindona's grip. They examined the affairs of Italcasse, the central savings bank association which had long and notoriously operated a "black fund" on behalf of certain Christian Democrats and their friends in industry. In 1978 it was the turn of Banco Ambrosiano.

  Sarcinelli knew full well that Calvi's bank, with its entrenched secrecy and cobweb of interests inside and outside Italy, would be an especially awkward assignment. No less than twelve inspectors (almost a quarter of the total) were sent to Milan, compared with just two who had drawn up the previous report on Ambrosiano in 1973.

  At moments during the six months investigation, it seemed that even a twelve-man task force was not enough. As the group got to grips with Calvi's labyrinthine share dealings, Sarcinelli discussed with Giulio Padalino, the chief inspector up in Milan, the idea of sending reinforcements from other divisions of the central bank. In the event, much requested information on Calvi's foreign subsidiaries was simply not forthcoming. Calvi claimed that to have done so would have been to breach the banking regulations of other countries. The argument was hardly convincing. Calvi was after all chairman of both the Milan parent and of the two subsidiaries which aroused most suspicion, Banco Ambrosiano Holding in Luxembourg and Cisalpine Overseas in Nassau. But there was nothing at the time to be done. In the teeth of such obstacles it was not until November 17,1978, seven months later, that the job was complete. The inspection of course was secret; but even if word had leaked out, it would have struggled for notice.

  Those months of unglamorous drudgery in Milan were some of the most newsworthy in recent Italian history. Aldo Moro, a former Prime Minister and President of the Christian Democrats, was kid­napped and murdered that May by left-wing Red Brigades terrorists. The following month President Leone (who had made Calvi a Cavaliere del Lavoro back in 1974) was driven from office by scandal. In the space of three months, there were three different Popes. Paul VI died on August 6, to be succeeded by Albino Luciani, Cardinal Patriarch of Venice, who took the name of John Paul I. "The Smiling Pope" reigned for just 33 days, until his death on September 29. Then, on October 17, at their second conclave in less than eight weeks, the Cardinals of the Catholic Church chose Carol Wojtyla, Archbishop of Cracow, to be the first non-Italian Pope in 450 years.