Good AAR. The German AI seems particularly vulnerable to a collapse in morale - historically they held on until late 1918, but (in game terms) the CP had by then conquered large parts of Russia, Poland, Ukraine, Romania, Serbia, Montenegro and most of Albania and would have had morale boosts from each sufficient to fight another year.
Another issue is the way the German AI throws away its navy, which really impacts German morale.
And yes, there's a few things going on with the morale collapse.
1) I was surprised just how much of a loss there was from the Ottomans and then Bulgarians dropping out. I was expecting some, for sure. But it felt massive.
2) The AI's ongoing temptation to conduct low-odds attacks, throwing away its strength and NM. In terms of strength this is mainly compensated for by giving the AI extra MPP
3) Navies - actually, the Germans didn't lose a huge amount of their navy - most of it was intact at the end of the war!
If I was doing this again, I would set the difficulty to Intermediate or higher the difficulty settings trigger AI helper events, including NM bonuses as well as free units.
I also wonder whether the penalty for an allied nation being defeated should be lower. As everyone's NM falls perpetually through the game, you already get a large benefit from the bonus from conquering somewhere. If your opponent gets a penalty as well then the whole effect has twice the magnitude.