I think that DEAD KEY DIACRITICS (like Meta+' for the acute accent) is better than having a key/LABEL with ö, ü, ä, etc. Even I think people watching those LABELS on the keyboard may be frightened thinking it is a local product only for one language.
I think no one gets frightened watching ´ ¨ like 2nd symbols (the same way we watch [ ] { } ^ etc), but watching ö, ü, ä, etc, seems like a local product, not a neutral/international product for all latin alphabets.
I think a neutral way to include all or most of the latin alphabets with dead key diacritics is the better way, because it is neutral and capable for near all latin alphabets language. And if needed, we can have optional language layouts via software, where one can change the layout and have for example dedicated ö, ü, ä without dead key use.
PD: I am Spaniard and we use á é í ó ú really a lot of because that accent indicates the pitch accent in a fixed rules, and all those are entered via dead key. If I see a keyboard with ñ and ç I know it is Spanish, but if it a keyboard instead have no local symbols but optional diacritics ~ ¨ etc, I see it like neutral.
My proposal (
http://www.keyboard-layout-editor.com/#/layouts/f9f3508ae2ea1ed6de939d0100173675) does not have explicit labels for dead diacritics (to keep things simple), but it does have dead diacritics by default.
It has a dedicated key for quote / double quote ( ' / " ), and this key does not have any Meta labels, since it is meant to be a dead acute accent (áéíóú) and umlaut (äëïöü) when used with Meta. My backtick and tilde (` ~) are on Meta positions, and the idea is that they can be used as dead grave accent (àèìòù) and dead tilde (ñõ) when used with Meta+Shift. Also Meta+comma is available for cedilla or ogonek (çşąęįų).
Any Latin-based letter with diacritics can be entered in just two thumb-presses in this way (since Meta and Shift are available as shoulder buttons, so no thumb travel is needed for those). Or in three thumb-presses if you use the Compose key method (e.g. Compose " U for Ü, Compose A E for Æ).
For comparison, on the Pandora the situation was much worse. The Pandora does not have Fn on a shoulder button, and it does not have dead diacritics. So to type é on the Pandora, you need at least four thumb presses: Shift-Enter (L1+Enter) for Compose, then Fn, then A (for '), then E.