Besides, the credit issue, another major factor is advancement of weapons. As Above-us-only-sky has noted, there is a military advantage to being part of a large state. Of course, this advantage is going to vary with the relative cost of producing the weapons of the day. World War II was a particularly interesting time in this regard. The end of WWI had seen the development of the Thompson machine gun. As you may know, the Thompson, aka the Chicago Typewriter, fired a small caliber bullet, and thus, at medium to long range, it was more likely to injure than kill. Having a weapon that maimed rather killed gave the advantage to the state, as an injured combatant would require medical attention, and the services of a doctor were usually much harder to come by for guerillas than for soldiers in a organized army. This is classic film noir: You see the gangster, who almost gets away with some robbery, but gets a little flesh wound, and can’t find a doctor, so he slowly bleeds to death. (All very consistent with the film code, of course) Also, after WWI, there was this bigger is better in nearly all types of weapons, leading up to WWII. And so, this set the stage for the emergence of many of the Fascist states of the 1930s. Small armies and guerilla movements were just not effective against the large well equipped armies the Third Reich, and the Japanese empire.
Things changed, however, after WWII. With the development of the A-bomb, it seemed that war would no longer be something that could be fought, except by the biggest, wealthiest and most powerful states. Time would show, however, that few countries were willing to go down the nuclear road. Instead, another invention following WWII proved to be the biggest game changer: this was the Kalashnikov rifle, aka the AK-47. Unlike the Thompson, it fired a full caliber bullet, making it an effective weapon for guerillas. We saw the consequences of the small, light, reliable and yet effective Kalashnikov in Vietnam, where a large well eqipped army (the US), was unable to crush the mainly guerilla resistance of the Viet-cong. We also saw the development of rocket propelled grenades, where a single RPG can take out a multi-million dollar tank. They say that Afghanistan was the Soviet Union’s “Vietnam”, but once again, a large organized army had failed to crush a guerilla movement, and this may have contributed to the demise of the USSR.
Returning to the credit issue thing, large states do have the ability to run up huge deficits year after year, sometimes it seems almost indefinitely. Eventually there does come a time however, when interest payments on these debts can eat up most of a country’s budget. So unlimited credit would seem to be a bad thing to combine with democracy, as it seems that the party that promises the most is the party that usually wins. We can see the full consequences of this in countries like Greece. I don’t know that Greece is likely to break apart, however, as I believe it to be a relatively homogenous country ethnically. There are other countries with a debt problem, like Spain, where you could see separatist movements gaining momentum, if there were another financial crisis, like the one in 2008, and you were to see debt-ridden countries like Spain pushed over the brink.