The Papal State is a theocracy in central Italy, its ruler is also the head of Catholicism, officially a large area around Rome was granted to Pope Stephen II by Pepin the Short. Although it was Pope Leo III, who crowned Charlemagne, the Papal authority was undermined by the Holy Roman Empire. Also, they suffered under various anti-Popes, once there were three different claimants.
Leo X and Martin Luther
Leo X was a member of the Medici family ruling in Venice, he started his reign with a help to the Duchy of Milan. However, he soon showed his lack of piety, spending the Papal wealth, while his cousin sold jewels behind his back. Leo was forced to start selling indulgences or face bankruptcy. His biggest mistake was excommunicating Martin Luther for speaking of internal corruption. A large wave of rebellion across Central Europe eventually let to a century of religious turmoil. After the short reign of Adrian VI, Leo's greedy cousin became the new Pope.
Pius IV and Alexander VII
Pius took a keen interest with the current situation and the Wars within the Holy Roman Empire and began a de facto crusade that would last until the destruction of the Lutheran city of New Rome. His successor Alexander VII took up the rule with a religious fever and brought a bad light on the Papacy as he was seen as a warrior and not worthy to be a religious figure.
When Alexander was apparently killed, a Spanish archbishop was elected. It is believed that Gustav I of Sweden, a keen Lutheran, affected the elections following Alexander's death. He took the name Gregory XIII to honor Gregory XII who tried to end the schism of the time. Unfortunately the Lutheran claimants refused. Gregory was very unfortunate and died of an illness within less than a year. The cardinal soon found another diplomatic and less of a hot head then Alexander, he took the name Innocent IX, he survived for several years and often spoke with the ambassadors from New Rome, at this time however a religious fever hit the Lutheran Pope and Peter II send Innocent a letter with all things he wanted for reunification. Alexander VIII was originally a diplomat, however he legally declared the Crusade after Sixtus VI insulted him with an even more demanding ultimatum.
Destruction of New Rome
Robert IV took up arms and conquered New Rome nearby his colonies in America and renamed it New Caledon, by this time the last Lutheran religious leaders ran away to either Poland or Iceland. The lesser Calvinist faith also took for Poland. A slightly different kind of Lutheran faith stayed in Scandinavia. However, it was not as opposed to the Papal States, at least following the 1559 talks between the new Pope Julius III, Eric XIV of Sweden and Sigismund II of Poland.