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Anyway, the reason why Germany in your savegames is overpowered is simply, because Germany is overpowered. If you let Germany form in MP, you did something wrong in the first place I'd say :P
I think your stuff with socialism is just a coincidence.
Add to that millions of people being peacefully annexed into the Germanies and "Germany" and you've got a real power machine. It is VERY easy to push ahead of the English very early without working for it.
I'd actually say that Germany works better staying ... Reactionary? (The non-conservative party you start out with) if only to allow you total control of industry and infrastructure. Build up a strong industry and you can throw literal millions at soldiers.
Next time we start a save, we'll definitely look into keeping the German states in check. Any advice on how I should go about doing that? Periodic "Cut down to size" wars, perhaps?
Cut down to size is just a ♥♥♥♥♥♥ move in MP I think (besides Great Wars) since you are absolutely defenseless when a random AI decides to take stuff from you.
Germany have very good population and high literycy rate allowing them to tech pretty fast. German High POP regions can have huge industry capasity and large number of capitalist and clerk POP to boost factories even futher.
One of the problem for Austria is that it is very multicultural country that means that minorities like Hungarians, Serbs, Kroats, Czech etc. If austria use moralism / residency parties with jingoism in power many minorities emigrant to USA and other democratic countries.
While for Germany 90% - 95% of population comes from accepted cultures if you form Germany then both North and south German POP are accepted culture. For German only Polish POP are large foreing POP type.
If you are playing weaker nation you can always try to play diplomacy in the way that you have the advantage. I have been able to beat up even France while playing Belgium by turning most of other great powers against them.
Austria also historically had lot of problems with minorities and couple very large civil wars against Hungarians its pretty historical that they have more problems than Prussia in that sence.
Am not trying to teach anybody I just wanted to write how I deal it if am weaker nation. Am not english speaker so it might be how I write things.