We address His Holiness as “holy” due to the dingity of his office, that of the See of Peter. He himself may not be a very holy man, but it is out of respect for the office he holds that we grant him this address.
It’s for the same reason Americans call every judge “Honorable” even though not all are. It has to do with the office and what the person represents rather than the actual merits of the person.
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