It looks like Khan Thaddeus was seriously exaggerating the merits of the Black Sheep, at the very least. The most charitable reading
possible is that he's been hanging out too much with the industrialists, and isn't really looking past their expanded industrial capacity.
Balthazar's next communication, if and when he sends one, would probably include some very pointed words about long-term management and duty to the lessers under one's care.
Honestly, the Black Sheep are a mess, and I'm a lot less sure now that a clean integration is possible. It's
very good that we didn't take their first offer. But, at the very least,
The Black Sheep themselves are split into two rough groupings. A belligerent group that is jealous of its new privileges, and their high status as conquerors.
It's obvious which grouping to go after. Targeted intrigue, perhaps? Leave only the faction concilitory to the Ymaryn, and we might have the impetus behind a peaceful integration.
With the Black Sheep, intrigue might be even more effective than relatively difficult military action. It's clear that a
lot of people are unhappy under their rule.
Silver lining: this will be our chance to introduce commoners to the bureaucracy, if only out of sheer necessity. Once it's clear that they can do the job, it could spur changes back home.
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On the Western Wall front, I think a war of attrition would favor us. They've been "hulking out" by conquering people who are probably stifling under their rule. Have their army distracted long enough, and they face a knife in the back.
Do they have Treasury problems? It depends on whether Western Wall are using the equivalent of a City Levy (one-time cost) or Mass Levy (cost each turn). In the latter case, they're likely to face serious problems within a few years. In the former case, we can't count on their Treasury being depleted before ours'.