I would rather convert Hamburg than Stettin to a city.
Hamburg has a much greater potential for trade, while Stettin is little more than a stockade placed in the middle of no man's land. According to the surveys and maps I have been able to find, there is almost nothing of value in the region. That city will never become a source of income for us, it is not even particularly fertile, and would grow slowly, further limiting its potential as a city. I suggest we keep it as a castle, and instead turn Hamburg into a city.
Regarding defense, I doubt that will be a problem at all. Stettin and Magdeburg are both very close by, and we can have reinforcements sent to Hamburg in a matter of days. And if we do end up at war with the Danes, I imagine we would be on the offense. They have only one city in the area, and given the chance, it would make a very nice addition to the Reich. Aarhus is a big city with a lot of trade potential, and it's easily defensible from the rest of Scandinavia.
If we end up at war with the Danes, I suggest we take Aarhus at least, which means Hamburg will be safe even as a city.
And if we stay at peace with them? Hamburg will also be safe, city or not.
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