Increasing relations with your neighbors is indeed a needed thing to do, but it's still nearly moot due to the mechanics, if you're not Austria with it's sheer amount of diplomats and dip buffs. If I'm Spain, and take some land from Morocco, Native Americans, Oriental or African nations, EVERYONE the world over is still going to be pissed at you irrationally, even if you've got the full diplomatic corps out and about mending relations. Sometimes I like to go into the coalition map mode, and just stare at the AE values that some of these nations get over things that shouldn't infuriate them, or even irk them slightly. I remember this one time, I was playing as Byzantium, slowly recovering, and after a hundred or so years of fighting my natural enemies, (Ottomans), peacing out before OE gets to 100%, etc.; SWEDEN of all nations decides to start a coalition against me. Then, every single power of Europe joined in, along with some countries I certainly hadn't discovered yet, and world war soon broke out, because I had spent the last 100~ years fighting INFIDELS for my CORES/CLAIMS.
Iniitial point: I entirely agree that coalitions need major further work, I believe they are currently an unfinished, beta-quality mechanic that is OP and needs major work.
However, I do believe AE and coalitions are manageable in many circumstances. What I quoted above is not my experience. I don't know if it's different for Spain, compared to England whom I normally play. But don't see why it should be different.
Example:
I have a 10-nation coalition against me in Europe. I spend a few years increasing relations with many of them, sending gifts, rivalling rivals, send war subsidies, genearlly improving relations.
I also get new alliances with Algiers, Morocco and Tunisia. As to why, that will be come apparent shortly. This puts me 3 over my DipRel limit, so I am losing some points, but I only expect it to be for a few years so it's not terminal. (At this point in the game I can have 7 max DipRel - including 1 bonus I got from a temporary, 5-year event.)
My next target is Mali, in Africa. I declare war against Mali, which means I also fight their ally Kanem Bornu. I 100% occupy both nations. I do Full Annexation on Kanem Bornu, then immediately release the whole nation as a vassal. From Mali I take the maximum five provinces I can get from 100% WS. I then Release as Vassal three of those five Mali provinces using the Jolof cores, then I feed my new Jolof vassal the fourth of five Mali provinces. The fifth I hold onto, incurring some OE. I keep it because it borders Songhai.
I use my new border with Songhai to declare a crusade against them. I DOW them with that CB, get 100% WS, and annex all but one of their provinces. I then immediately DOW them again a month later, incurring the -3 stab and AE hit for breaking truce (I immediately boost back to 0 stab.) I 100% them again, Full Annex their last province, then I release the whole of Songhai as another vassal.
Then I feed Songhai that fifth Mali province I took in the first war, taking me back to 0% OE.
So I have just conquered three African nations - a total of 18 annexed provinces - in three back-to-back wars, the last of which was a Break Truce.
With Mali I now have something stupid like -450 AE. What about in Europe? How much extra AE did I incur? I didn't. My AE dropped by around 30. I made a net profit on AE against everyone in the world except African nations. After the last war, Mali joined the coalition, but 8 out of 10 of the European members left.
Why? Because all those huge African AEs, like -120 for annex Kanem Bornu, are only -1 or -2 to distant European nations. And every time I did Release as Vassal (remember I did annexation in the war, then REleased as Vassal - I didn't use Release Nation or Force Vassalise in the peace), I got a flat 2 AE reduction
per province to the whole world.
So my conquering in Africa not only gave me a whole bunch of African vassals - whom later I will annex of course - it actually
reduced my AE to Europe.
Finally, back to those three alliances I took with Morocco, Algiers, Tunisa. Why I did that should be obvious. Those were three big African nations who definitely would have joined the coalition, because they would have got a huge chunk of AE from all my conquests. So I 'bought them off' - I allied them before I started the wars, and I therefore incurred pretty much no AE with them at all.
A year or two later, after some more Improve Relations, I broke off those alliances with Morocco, Algiers, Tunisia, to save on my DipRel slots.
The end result of all this is that after I ended my last war, all but 2 of those 10 coalition members left the coalition against me. Because, as I mentioned at the start, I had been boosting relations and sending gifts etc with as many of them possible, all during the long years of my three African wars.
Is this gamey? Yeah. Personally I
really enjoy this sort of stuff - it's like a big puzzle, working out what relationships I need to massage and manipulate, and the correct order to conquer territory, and which peace options to use, etc.
Anyway my point is simply that usually you can manage relations and you can keep coalitions to an acceptable level against you. It does require some careful planning. Coalitions definitely need more work. But I don't regard them currently as game-breaking, just game-changing (and not necessarily, for me at least, always for the worse.)