Issue is that this is too harsh depending on the country. Do you think the US would suddenly collapse, their entire military deserting if Washington fell? Would the USSR, judging off of Napoleon’s own campaign, collapse from the fall of Moscow? 10% morale loss is a significant reduction in resources, gives the taker a huge boost and loads of money, and still give the loser a chance. Being unable to build anything for 18 hours may as well be you losing the game, 50% morale? come on. I mean China lost their capital in ww2 and they made forces just fine…

Maybe their should be a change, but this much is ridiculous.

I have no idea why you think this is too lenient, losing your capital is a serious blow and punished quite hard enough as it is.

I think perhaps it's a good idea to make it a more serious blow, although I wouldn't agree with "you cannot build anything except a capital building." I'm not sure why that would be realistic, appealling, or overall make sense.

That said I don't like changes. And as said capital offensives are already enough to lose a war, especially with 50% of funds looted.

A side note though, if you take a capital, your morale increased by 10%, the enemy's decreases by fully 20%. This prevents a positive feedback loop of "capital farming".
Not sure I'd go that far, they were already relocating and lost half of their army, and failed to make a major offensive until Changsha in 1942.
But IRL the Dutch and Belgians (and others) in Europe fought in the colonies well after their capitals and "core provinces" were lost.

I’m confused at what you mean. Nothing I said was stating that they are doing well. My point was that even when their capital fell the government relocated and continued resistance, they didn’t just collapse, lose their ability to put up resistance and were still forming new divisions. It was a hit, but their army didn’t melt into butter with the government paralyzed.

I wouldn't say the Dutch or Belgians are very good examples; they didn't just lose their caps but the rest of their core too. Arguably they didn't contribute much to victory after that, but I doubt if they would have been able to do that if they by some miracle would have kept their capitals.

That goes for most countries who lost their capital in WW2, they usually lost their entire core around the same time (a shortlist: Poland, Norway, France, Yugoslavia, Greece, Germany). Indeed the loss of Washington, Moscow, or even London would probably not have knocked those countries out.