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Several reasons: Getting ambushed by the enemy, which gives them an "Enemy Advantage". Or that the enemy is at least 10 BR higher than you.

You can raise morale by using various arts such as Bluff or Retreat Flare. Critical Hits, Flanks and Rear Assaults can also raise morale. Union morale is a separate entity, although it's governed by many of the same rules, but doesn't affect the union's stats. It does, however, affect how likely certain units will trigger Special Arts.

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