Come on, the diplomacy in EU is vastly superior to TW. A "white peace" is also a very common solution in real life peace deals, when one side is not prepared to actually surrender. Although Im not sure the small gains you get from winning most wars are necessarily more realistic - in game terms they are an excellent way of slowing down the human player from expanding too quickly.
Anyway, back on topic. The best settings for an experienced player that wants a challenge without having to play in a gamey way is IMO very hard campaign / hard battles. Most people can win in their sleep on medium, so you do need to give the AI some kind of advantage! The higher casualties at hard level also tend to help slow your advance down and even occassionally make you lose *shock, horror, gasp*.
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