I wonder if it might help if, rather than having the existing system of global and faction reputations (which leads to situations where the AI will not surrender even to save itself because your relations are too poor), faction relations were fixed from the start of the game. After all, it seems to me that most of the real grudges between nations were already present at the start of the game; the British didn't like the French much, for example, and they went on disliking each other at more or less the same amount throughout the period.

That way, there could still be some sense of rivalry and mistrust between certain nations, but the AI would be more free to wage wars and sign alliances pragmatically, rather than because a certain faction blockaded their port 50 years ago so they are programmed to hate that faction forever. Thus, the French would almost certainly fight to the death rather than becoming a British vassal, but other factions with no particular reason to hate the British besides the recent war, might be more reasonable. As Odin says, diplomacy and alliances were a big part of many wars in the period, so there should certainly be a lot of it going on, without it always inevitably leading to "we hate you forever and will never deal with you again" type relations with all factions.