One of the problems, as I perceive it, is that no such things as local or regional conflicts exist. This is not just a problem with the ERE, but everywhere in the game. Everywhere, any conflict is immediately taken to the highest level, as you will always be fighting the highest authority of a given realm.
For local conflicts, fighting over baronies would allow you to chip away at an enemy. Naturally, it may evolve into a larger conflict, where the CB is slowly expanded. This could happen by moving troops into areas that wasn't initially part of the hostilities.
Expanding the scope of war, however, makes little sense as the peace treaty is set in stone from the get go. Oh, you've literally occupied the entirety of the ERE? It's too bad that the Victory/Defeat peace treaty was written before we started the war. Oh, you defeated the attackers and conquered the neighboring lands, wouldn't it be cool if you could demand those areas in a peace treaty? Too bad, here's this paltry amount of money that only covers a small part of your expenditures.
So, in short:
Allow the conquest of baronies
Allow local wars, that don't involve the entire realm all the time
Allow local wars to evolve into larger regional and even realm wars
Revamp the hopelessly archaic peace treaty system to make them flexible.
Flexible peace treaties could work like this (copied from an old comment I made):
Have you played Total War Three Kingdoms (3K)? If not, then let me explain. The Total War series are notoriously bad at diplomacy - or at least they were. The AI went to war for no particular reason, didn't want to trade because of some unknown reason and the list goes on. Well, 3K Total War managed to turn that completely around and today it is a a very, very robust and thought through diplomacy system.
The system is different from EUIV as it allows both parties to raise demands during peace negotiations - or any other negotiation for that matter. Something which isn't even possible in EUIV despite almost no negotiations throughout history were completely one-sided.
A very crude image of it would be like this:
| Demand: | Give: |
| The county of Toulouse | 350 ducats |
| The county of Carcassonne | Marriage with Marianne (your daughter) |
| The Title: Duke of Toulouse | The county of Nevers |
| Establish Non-aggression pact | Establish Non-aggression pact |