Postmortem:
Merlin had multiple objectives:
1. Make Coria a Monarchy and crown himself King.
2. Remove League support from Rieleston and destroy Rieleston.
3. Establish a diplomatic framework that encourages limited wars and prevent all-or-nothing realm-ending wars.
4. Decrease the amount of influence CE and Tara has on Coria.
All of these are sensible, if ambitious goals. Each of them should have been long term, multi-year projects. The fact that he pursued all of them at the same time belied an over-confidence that doomed everything from the start.
If he wanted to crown himself King, he first would have to be Consul for at least a year, while rebuilding his damaged relations with Jason and Ottar. More importantly, he needed to project an image of stability and competence (neither of which were on display in the past week). Eventually he could make the argument to Coria's nobility that they keep electing him, so they might as well crown him King.
If he wanted to destroy Rieleston, he first needed to repair his relationship with Jason, and convince Jason that Rieleston was a real and present danger to Coria. The faction that he completely neglected is Talerium, whose leadership also have good relations with Rieleston. More importantly, Talerium would be the ones who would value military access to BoM, and thus have a real incentive to be friends with Rieleston. I'd also like to point out that trying to destroy Rieleston is incompatible with goal #3. It's pretty hypocritical to talk about preserving realm sovereignty while secretly plotting to destroy a realm.
If he wanted to establish a diplomatic framework of any sort, he would need to (again) repair his relationship with Jason and Ottar. It's not strictly necessary, but getting CE and Tara AND Talerium on board with the plan would make things 10 times easier. Diplomatically isolating CE and Tara and Talerium, and then shaming them into accepting the framework, is theoretically possible, but seems like a moon shot to me.
If he wanted to free Coria from Cagilan and Tara influence, the only way to do that, I believe, is to betray the League and switch sides. (And like Perth said, it's a little too late for that.) Of course after that, Coria would be under Darkan and Makarian influence. There is just no way around it. If you are a realm in BattleMaster, you are always under some other realm's influence. A realm that thinks it does not need to answer to anybody tend to turn into a dead realm rather quickly.
Other mistakes:
Talking to every foreign ruler expect those of his own allies: This was interpreted as a snub directed toward his own allies. The other rulers also proved to be untrustworthy, and gleefully took the opening to assume control of the narrative. By the time Merlin was protesting about forgeries, it was already too late. All Jason, Ottar, et al., had to do to get their own nobles on their side was to ask, "Do you really want to put Merlin in charge of handling diplomacy for us?"
Having lost credibility, others began looking at Merlins actions instead of listening to his words. What they saw was:
* Phoenix Empire and Kingdom of Coria founded simultaneously.
* Phoenix design on new Kingdom of Coria banner.
-> Conclusion: Phoenix Empire equals Kingdom of Coria.
It wasn't so much that nobles were deliberately misinterpreting him. It was that nobles no longer trusted a word that Merlin says, and were drawing their own conclusions from his actions.