hello...I experienced same troubleshoot for Bologna, when playing hs game. I asked here for help. All was triggered at first turn when a message event comes warning you that Bologna has no more money to allow any recruitment. I simply ignored it...and one turn later I noticed Bologna could NOT recruit anything anymore...so I simply played the game by hiring mercenaries troops..merchants provided me with enough money to win the hs (I played the hs against AI) pretty well...
After I played, I decided to investigate more about this...
so I started again with Bologna, but this time it was not for playing, but rather for understanding...the event message ADVICED to face the odds by either 1. disbanding units or 2. expanding my duchy. Since this is what I did in my first hs, I expanded a lot (without unblocking the enrolement queues), I assumed EXPANDING or HAVING A POSITIVE TREASURE does NOT help...
so I applied second option...I disbanded ALL my units at first turn....
and it WORKED...
a couple of turns later I could make Bologna behave like all other factions....
PLEASE NOTICE that....without disbanding, I opened console and tried to complete all construction queues and add plenty of money but new units KEPT to stay FORBIDDEN (kind of frustrating situation)...so, as far as I know, the ONLY TRIGGER to get rid of this '
' is to disband all your units at first turn...
I didn't check too much around this....
Of course I started to believe THIS was some 'plan' from designer that went 'wrong' in practical instance..in other words, the designer meant to re-create some historical event, but implementing it by Medieval 2 tools resulted in a sort of 'failure' to what anyone 'expect' from realism...
Last hint....I am talking about DIK ULTIMATE v0.8.9 "only"...I didn't install any other version of this mod...
Hope this helps