You haven't read very carefully. Moral didn't drop when we broke the alliance it was being hurt because of the continued alliance with a realm that didn't exist.
An allied realm being destroyed doesn't effect moral at all.
It is morale, not moral. Different words and meanings.
Yet it is you who fail to read, or more accurately, fail to comprehend.
A federation is a joining of realms under a common banner. Think of it as an empire or a kingdom with joint crowns.
Let us use the United Kingdom for instance. Your realm is England. You are in a federation with Wales, Scotland, and Northern Ireland. At some point, France decides to invade Scotland and they either annex it or drive it all into a state of anarchy. How do you think the common citizens of the rest of the federation will feel if England just sat back and LET it happen?
I would say morale would suffer, and rightly so.
