Corelli nearly dies of shock when Father Arsenios interrupts his reading of the pamphlet. Arsenios merely glares in response to Corelli's polite greeting, prophetically recites some Bible verses, and walks away. Dr. Iannis, Pelagia, and Carlo interrupt Corelli again a few minutes later. Carlo is in a fantastic mood and Dr. Iannis remarks that the pamphlet is amusing. Corelli insists it's British propaganda, but when Carlo points out that there were no planes last night, Dr. Iannis happily says that someone on the island printed and distributed the pamphlet. He notices Carlo looking angry and walks back his assessment. Corelli tears up his pamphlet, offers it to the goat, and stalks off.
Remember that Carlo was one of the people who contributed to the pamphlet. Because of this, his good mood suggests that it's possible to reach some semblance of catharsis by telling the truth and going against powerful leaders, even if doing so is also very dangerous. Note, however, that Dr. Iannis doesn't seem particularly worried about anyone being persecuted; this reinforces the world's view of Greece as inconsequential, where things like this can happen without needing to crack down.
Carlo apologizes for Corelli's rudeness. Pelagia suggests the pamphlet could've been written by conspiring Greeks and Italians, and notes that the Greeks listen to the BBC. The narrator notes that she doesn't know that the Italian soldiers do the same thing, which is why the entire island knows the same jokes about Mussolini. Carlo and Dr. Iannis worry that someone else will also figure it out, and, catching this, Pelagia drops the subject. She thinks for a moment and then realizes her father was involved in something extremely stupid. She storms away, and Dr. Iannis suggests he should've brought her up stupid since smart women cause trouble.
The fact that everyone on the island gets their news from the BBC--in the case of the Italians, they're getting news from their enemies--illustrates just how broken the Italian military system is at this point, given that the only place to hear the truth is from the enemy. Dr. Iannis's comment about Pelagia and smart women recognizes that because Pelagia has critical thinking skills, she's more likely to anger the men around her by not agreeing with them.