Actually, while trying to be all sweetness and peace, I did end up having to retaliate. My economy was so controlled by port blockades, and my meagre poor man's military so run down, that my little empire was dying from neglect and attrition, with insuficient funds to make repairs or retrain, let alone improve. Trying not to fight it out really allowed the AI to nearly crush me. Only when I mustered what was left of my forces and retaliated by sacking a few provinces, did I generate enough income to beat the senile city syndrome and even my economy out, but it wasn't until I sacked their cities and kept them, that the collapse reversed and things turned up (by the twin goods of having the enemy resources, and reducing their military).

Now I have all but the two most northerly HRE provinces and all but the two most northerly Hungarian provinces, all of the non-iberian Moorish land and a goodly chunk of France is in rebel hands or belongs to the Pope (from before I took the gloves off), and things are sweet, but equivalent to if I'd just gone forth and been angry all over them buggers to start with.