The first thing that strikes me about a penalty for holding too many cities in Europe is that if it is effective, NATO need not bother defending Europe very much. At the very least, the Americans wouldn't be very likely to station troops in Europe, or threaten nuclear retaliation on behalf of Europe. If the penalty is an effective deterrent to expansion beyond West Germany, then things like nukes and armies are unnecessary to deter that possible aggression. It is hard to imagine that it would be worthwhile to hold a city that costs 2000 gold per turn or more, so in that sense, I think the penalty would be effective. I'd generally be reluctant to 'use up' my 'cheap' city occupation in case it turned out to be important at some point. If you can unilaterally give away cities, then I could see a situation where you conquer a bunch of core cities, and then 'surrender' them to the third power block. E.g. Soviets conquer Europe, surrender the cities to Pro West, and America gets the penalty. Basically, everyone would be giving away the extra cities every turn. Perhaps the solution is to have some probability of an accidental/unauthorized nuclear attack via event, and things like invading "nuclear allied" places increase the probability. Perhaps each player can have a 'nuclear policy', where lowering the chance of an "accident" also makes one more susceptible to not responding to a first strike. This sort of thing might make for an interesting game where no one feels totally in control of the situation. Not wanting to risk triggering a nuclear war would re-direct efforts to places that don't run that risk.