In 1529, at a meeting of the diet in Speyer, Ferdinand, Charles V’s brother, attempted to reinstate the ban on Luther and his followers that Charles V had suspended to gain the princes’ support for a campaign against the Ottomans. Several of the delegates protested, and the term Protestant came to be associated with the movement. The next year, led by Luther’s associate Melanchthon, the Protestant delegation presented a conciliatory statement or creed, which has come to be known as the Augsburg Confession. This concise summary of Lutheran beliefs was rejected by the Catholic princes, leading Protestants to form the defensive Schmalkaldic League in 1531. Eventually the league included seven princes and 16 cities.
During the 1530s and early 1540s Charles was mostly preoccupied with the Ottoman threat. In 1545, however, he turned his attention to the Schmalkaldic League. In 1547 his troops soundly defeated a Saxon army at Mühlberg, and the emperor’s ascendancy was assured. In 1548, at the peak of his power, Charles issued the Augsburg Interim, an attempt to end religious division within the empire by some minor concessions to Lutherans. This interim settlement failed to appease Protestant princes and threatened to provoke a much more destructive civil war within the empire. A compromise was reached in the Peace of Augsburg, which Charles reluctantly accepted in 1555. This treaty became the foundation for religious coexistence in Germany for the next three centuries. Most importantly, it granted the princes and cities full sovereignty regarding religion.
Each ruler could choose either Lutheranism or Catholicism as the official religion of his territory (the Reformed and Calvinist creeds, while not prohibited, were not recognized by the Peace of Augsburg). He was free to treat nonconformist subjects as he wanted, sometimes forcing them to migrate or convert. Religious segregation, rather than toleration, seemed the only solution, and for the rest of the century at least, it seemed to work. "Germany" © Emmanuel BUCHOT, Encarta, Wikipedia
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