God has set up the world so that the realms of church and state are different and should be kept separate. Nowhere in the Bible does it say that the leader of the church should lead the state or vice versa. In fact, when the Bible speaks of the state government, it outlines its duty and nowhere does it say it should have church duties.
In theory, Pope Benedict's political power is within the Vatican. However, he has the power of the bully pulpit to influence a lot of people from lay church goers to impressionable politicians. This isn't a power that will go away any time soon. Benedict's power comes from the people who attend his church, and they are in the millions.
It is absolutely insane that we let this criminal organization have any power in the modern era let alone political power. The pope is the head of a corrupt, racketeering, abusive cult and he should be treated as such. He needs to be stripped of his title as leader of his own country and his political powers should be limited.
We can't even trust political power to secular people, let alone somebody who believes he was chosen by the Holy Spirit. Giving the church any political power would be a disaster, as the church has been shown to be against reason, logic, and science, even more-so than our current state.
I firmly believe that politics should exist is two separate realms and that mixing the two is a bad idea. Governing large bodies of citizens is not the role of religious texts, nor should it be. Laws and policies are best left to those whose judgement is not clouded by religion.