I've seen AI factions go so far into the red they would have to sell their entire empire off. Fifty turns into an arms race, faction X now has -6783 gildar, for example. If they can't manage their economy, they should have to deal with revolution in the ranks... soldiers razing cities and wandering the wilderness as bandits, armies turning on their sovreign, that kind of thing. Afterall, sovreigns are supposed to attract settlers because they are bastions of hope in the blighted darkness of the world, not just because they are powerful. If it was all about power, everyone would be troll food or slaves to sand crawlers.
Maybe set up a system that works with dynasties, if you go into the red you have a timer before one of your offspring creates a splinter group, takes a major city, steals some of your units, and starts attacking you with them. This would make for a much more interesting "immersive" feel, and add some coolness to the Dynasties system that makes it more like real mideval europe.
