Relations with the Roman Catholic Church improved significantly during Mussolini's regime. Despite earlier opposition to the Church, after 1922, Mussolini made an alliance with the pro-church Partito Popolare Italiano or Italian People's Party. In 1929 Mussolini and the pope came to an agreement that ended a standoff that reached back to 1860 and had alienated the Church from the Italian government.

The Orlando government had started the process of reconciliation during the World War, and the pope furthered it by cutting ties with the Christian Democrats in 1922. Mussolini and the leading fascists were atheists but they recognized the opportunity of warmer relations with Italy's large Catholic element. The Lateran Accord of 1929 was a treaty that recognized the pope the sovereign of the tiny Vatican City inside Rome, which gave it independent status and made the Vatican an important hub of world diplomacy.

The Concordat of 1929 made Catholicism the sole religion of the state (although other religions were tolerated), paid salaries to priests and bishops, recognized church marriages (previously couples had to have a civil ceremony), and brought religious instruction into the public schools. In turn the bishops swore allegiance to the Italian state, which had a veto power over their selection. A third agreement paid the Vatican 1750 million lira (about $100 million) for the seizures of church property since 1860.

The Church was not officially obligated to support the Fascist regime; the strong differences remained but the seething hostility ended. The Church especially endorsed foreign policies such as support for the anti-Communist side in the Spanish Civil War, and support for the conquest of Ethiopia. Friction continued over the Catholic Action youth network, which Mussolini wanted to merge into his Fascist youth group.

In 1931 Pope Pius XI issued the encyclical Non abbiamo bisogno ("We Have No Need)") that denounced the regime's persecution of the church in Italy and condemned "pagan worship of the State." A nationwide plebiscite was held in March 1929 to endorse the treaty. Opponents were intimidated by the Fascist regime; the Catholic Action party (Azione Cattolica) instructed Italian Catholics to vote for Fascist candidates to represent them in positions in churches, Mussolini claimed that "no" votes were of those few ill-advised anti-clericals who refuse to accept the Lateran Pacts". Nearly 9 million Italians voted or 90 per cent of the registered electorate; only 136,000 voted "no”.

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