Every time I look at this article by Ratzinger, I have to recall the root reason for this startling affirmation: the rampid paganism in the Catholic Church. So, I cut out sentences and go to the bold affirmations to keep it clear in my head.
“Paganism resides today in the Church herself, and precisely that is the characteristic of the Church of our day, and that of the new paganism, so that it is a matter of a paganism in the Church, and of a Church in whose heart paganism is living….
“it is a new paganism, and therefore, a paganism that was born in the Church, and has borrowed from her the essential elements that definitely determine its outward form and its power….
“The fact that today, even given an optimistic evaluation, certainly more than half of the Catholics (here we are considering only our Church) no longer “practice” their faith…It is still evident that they no longer simply embrace the faith of the Church,… And there can be no doubt that most of them, from the Christian point of view, should really no longer be called believers…
“When the Church had her beginning, it rested on the spiritual decision of the individual person to believe, on the act of conversion….”
These remarks of Ratzinger beg for his clarification as to what is the act of faith. I copy from his “autobiography:” “’revelation’ is always a concept denoting an act. The word refers to the act in which
God hows himself, not to the objectified result of this act. And because this is so, the receiving subject is always also a part of the concept of ’revelation.’ Where there is no one to perceive ‘revelation,’ no re-vel-ation has occurred, because no veil has been removed. By definition, revelation requires a someone who apprehends it.”
If I may, revelation occurs when the believer, moved by the grace of the Spirit makes the conversion away from self and experiences himself as going out of self as Christ is out of self as Son of the Father. We have let the act of faith be an act of faculties of intellect and will where by we receive ideas which we call supernatural and reduce “faith” to those ideas that we then call “dogmas.” We have reduced the faith to idealogy and practice an ideological paganism. Unwittingly. And from this, the breakdown of the Life of the Church which we are witnessing in the breakdown of the family and the moral degeneration of the clergy.
 R. Ratzinger, “Milestones” Ignatius (1997) 108