Why was the name "Holy Roman Empire" a misleading name?

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The Holy Roman Empire was made up of a group of little states in Germany and Italy.  As your question implies, its name was a total misnomer.

The Empire was not holy because it was not based in any way on moral acts.  Instead, the Empire started because Charlemagne wanted the Church's support so that he would have more power.  Meanwhile, the Church wanted the support of a major ruler so it would be protected.  The creation of the Empire was about power, not holiness.

The Empire was not Roman.  It didn't cover nearly what the Roman Empire had covered and it was not ruled by people with any connection to Rome.  It also wasn't really an empire because the Emperor's did not have much control over the various little states that were supposedly parts of their empire.

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