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The Vatican's opinion of Diem's regime, in public, seems to have been one of 'no comment' judging by the lack of public statements. In private, Diem may have initially enjoyed at least some support from the Vatican. Later, the Vatican distanced itself from Diem due to the unpopularity of the Vietnamese leader in his own country.
According to Wikipedia, referring to the period 1950 to 1954,
Diệm spent most of the next four years in the United States and Europe enlisting support, particularly among fellow Catholic politicians in America and Vatican officials. Diệm's success with the latter group was helped by the fact that his elder brother Ngô Đình Thục was the leading Catholic cleric in Vietnam and had studied with high-ranking priests in Rome.
Diem was initially strongly backed by Francis Spellman, the Archbishop of New York, who was very anti-communist and close to Pope Pius XII. It was Pius XII who approved the Decree against Communism in 1949 so it is feasible that he also supported Diem.
However, it seems that Diem's harsh policies towards Buddhists and the high level of corruption may have been a source of embarrassment to the Vatican for, in a 1963 issue of the Catholic Weekly,
it is noted that: "Archbishop Thuc later told reporters in Rome that the Vatican had ordered him to keep silent about his activities and the affairs of his country while he was outside Vietnam.”
The relationship between Diem and the Vatican seems to have already been strained - he had opposed the Vatican's choice for Bishop of Saigon, preferring instead the aforementioned Thuc, his brother.
Both John Cooney, in The American Pope (on Spellman), and especially Avro Manhatten, in Vietnam: Why did we go? claim that the Vatican was deeply involved in supporting Diem but both books are controversial to say the least. See comments here (Cooney) and here (Manhatten), for example.
Other sources:
The Catholic Church in Sydney & the Vietnam Conflict by C.F.Bowers
Catholic Vietnam: A Church from Empire to Nation by Charles Keith
https://en.wikipedia.org/wiki/Ngo_Dinh_Diem_presidential_visit_to_the_United_States
http://www.huffingtonpost.com/2010/09/22/how-the-60s-transformed-t_n_735766.html
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President Ngo Dinh Diem was a Catholic and brother of the traditionalist Catholic Archbishop Thuc. Diem governed according to Catholic principles, even legislating laws more in accordance with Catholic teaching. He was one of the several assassinated by the CIA coup right before the Vietnam War began. Some consider Diem a martyr much as some French consider King Louis XVI a martyr.
The Vietnam War began over a dispute between the government, run by Catholics (some even say it was nepotism), and Buddhists. Diem enacted a law that said a religious group had to petition the government first before being able to fly a flag for a religious holiday. Diem's brother Abp. Thuc celebrated his 25th anniversary of his episcopal consecration civically and with great pomp, but thereafter the government denied the Buddhists the ability to fly their flags on their religious holiday (6 May 1963), and the Buddhists became violent in protest (hence the memorable pictures of violent Buddhist self-imolations / suicides). Thereafter, there was a CIA coup to assassinate Diem (2 Nov. 1963) because, as Johnson later said, Diem was unfit for governing Vietnam. A few million Catholics regrouped into one region of Vietnam.
Diem had a love-hate relationship with the U.S. and France. France was a colonizer, but France's withdrawal from Vietnam left it unstable. The U.S. could've helped with stabilizing it, but it doesn't seem assassinating Diem helped.
At its core, the Vietnam War began as a religious war of Catholics vs. Buddhists.
Diem had an audience with Pope Pius XII, as mentioned in Miller's Misalliance p. 38.
According to this, in 1966
Pope Paul VI addresses 150,000 people in St. Peter’s Square in Rome and calls for an end to the war in Vietnam through negotiations. Although the Pope’s address had no impact on the Johnson administration and its policies in Southeast Asia, his comments were indicative of the mounting antiwar sentiment that was growing both at home and overseas.