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I'm wondering if the State of Croatia event shouldn't have some negative consequence, apart from the MPP cost.

Historically, the new Pavelic's Croatian state engaged, as one a firsts measures, in a campaign of ethnic cleansing and civilian killings (mainly serbs), even more extremist than German and Italian policies, that greatly spurred the creation and strenghtening of yugoslav partisans.

What sorts of consequences do you think should occur?

Maybe after a few turns the rising of more partisan units or in the current campaign yugoslav partisans with added strength.