Here is what Pope Benedict said last year on this topic.
Indeed, we may say that the distinction between religion and politics is a specific achievement of Christianity and one of its fundamental historical and cultural contributions.
Colin is right to quote this. Yes, the post-Vatican II church does consistently say that the secular state is the great achievement of mankind, following Vatican II’s new teaching. You can find the prepositions in the constitution Dignitatis humanae. You may have read them before without realizing that they assert ideas that were explicitly condemned by the Church before, almost word for word in the case of Pius IX’s Quanta cura. Colin is right to say that Benedict XVI supports the separation of Church and state. But perhaps he does not know that the traditional Church did not.
So the question is not closed, since we Catholics are never free to depart from the tradition of the Church. As long as there are faithful who will read tradition, and as long as human beings retain our slight facility for logicical thinking, the question will not be closed. It is presently one of the items on the agenda of the talks between the Society of Pius X and the Vatican.
Where is the error in the new teaching? What is the problem? We quasi-protestants in the US cannot get our heads around it, because we were raised to be secularists. The problem is that before the Council, the Church always correctly taught that absolute religious liberty (absolute means by right, not by courtesy–get the difference?) necessarily means state atheism, in the end. Please allow me to quote two paragraphs from Leo XIII’s Libertas talking about a new error in the world called “liberty of worship”:
Liberty of forms of worship, considered in its relationship to society, is founded on the principle that the State, even in a Catholic nation, is not bound to profess or to favor any cult; it must remain indifferent with regard to all and take them all into equal consideration legally. It is not a question here of that de facto tolerance which, in given circumstances, can be conceded to the dissident cults, but rather of the recognition granted to them of the very rights that belong only to the one true religion, which God has established in the world and has designated with clear and precise characters and signs, so that everyone can recognize it as such and embrace it.
Further, such a liberty indeed places on the same level truth and error, faith and heresy, the Church of Jesus Christ and any human institution whatever; it establishes a deplorable and deadly separation between human society and God its Author; it leads finally to the sad consequences of State indifferentism in religious matters, or, what comes to the same thing, its atheism.]
I hope Colin will continue to research this issue. A great book to start is They Have Uncrowned Him, by Archbishop Marcel Lefebvre. It is very thoroughly footnoted and easy to read as well. I admit it is rather painful for an American like myself, raised to equate secularism with patriotism, to get my head around it, that to say that all religions, including my own, are equal, is to abandon Christ. It is to deny Christ, and all He stood for, and most of all, died for. It’s really about love, to me, and love is really what it takes to get to heaven. I am pretty sure you can’t say Christ is King and mean it, when you’ve got your fingers crossed behind your back, and you’re muttering,’ And Buddha…and Krishna…and all those other guys.’ It’s like saying all the boys really are ‘equal,’ and then trying to fall in love with just one. Anyway that’s how I feel about it.
A more rational and less emotional person than myself might point out (one encyclical does) that society doesn’t work when society and faith don’t agree on such major points as whether murder and theft are wrong, and what a parent’s role in a kid’s life should be, on marriage and divorce and appropriate sexual behavior, on even something like whether or not we will have a Lord’s day when they can’t make us work. It makes an unhappy society (except for a very few people) when we honor nothing, and arguably a more violent one. There is just no way anybody can say we’re happier and healthier and wealthier now than when God still had a toehold in our society, before the inevitable shaking out of protestantism finished, which took time and hadn’t resulted yet in what we have now.
What we have now. Do you really like it? Would it not be better to live where there was a small tip of the hat to the Creator? We are sick to death from not having it!