"It is in the Gospel that Christians find inspiration for their daily lives and their involvement in worldly affairs – be it in the Houses of Parliament or in the stock exchange," he states.
"Christians should not shun the world, they should engage with it," he adds, "but their involvement in politics and economics should transcend every form of ideology."
The Pope also praises Christians' work for a more equitable sharing of the earth's resources, done out of a belief that they have the duty to care for the weakest and most vulnerable.
"Christians oppose greed and exploitation out of a conviction that generosity and selfless love, as taught and lived by Jesus of Nazareth, are the way that leads to fullness of life," he explains.
And he says that because the goals of peace and justice are shared by so many, "much fruitful co-operation is possible between Christians and others."
"Yet Christians render to Caesar only what belongs to Caesar, not what belongs to God," he insists, pointing out that Christians cannot always comply with governments' demands.
Pope Benedict then responds to the frequent assertion that Christians "refuse to bow down before the false gods proposed today" because of "an antiquated worldview."
Christians will not comply, he says, because "they are free from the constraints of ideology and inspired by such a noble vision of human destiny that they cannot collude with anything that undermines it."
He ends his Christmas reflection by speaking about Italian nativity scenes that include ancient Roman buildings in the background.
These displays show Jesus' birth as an end of the pagan world "in which Caesar's claims went virtually unchallenged."
"From the manger," the Pope writes, "Christ calls us to live as citizens of his heavenly kingdom, a kingdom that all people of goodwill can help to build here on earth."
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