Just to clarify: First, Horthy declined to trust the Hungarian throne upon the Habsburg heir - twice. Restoration was not a real option there.
Let's clarify it some more. I can agree with you, but only partly.
Yes, indeed, the two attempts to retake the throne, made by Károly IV, were not successful. But that was in 1920s, when the whole situation in Europe was completely different. A Hapsburg restoration was not an option then. It was still not an option in 1933 when the National Socialist regime in Germany was not taken seriously by the leaders of other nations. But it became an option as Germany grew stronger and her foreign policy more aggressive.
On October 11, 1937 a new political coalition to restore the Hapsburgs in Hungary is formed. It consists of the Agrarian Party of Hungary which joined with the Legitimists to form a new political bloc for the restoration of the Hapsburg monarchy as the best means to block National Socialist elements in the country. In 1937 even the Hungarian Social Democrats, let alone monarchists, considered a Hapsburg restoration as a viable option to stop the National Socialists. How can we say it's not an option now, in 1937 ? It is already an option.
In the same 1937 Hungarian National Socialists, led by Ferenc Szálasi, proposed Horthy claiming the throne for himself. He declined the proposal. Does it mean he was opposed to a possible restoration ? No, it only means he didn't want to deal with the domestic Nazis. He had nothing against a Hapsburg restoration in general, just wanted to use it for suppressing the National Socialists, not for allying himself with them.
That's why in February 1938, shortly before the Anschluss, the Hungarian Government arrested Ferenc Szalasi (already not for the 1st time) and a whole bunch of other leaders of the Nat. Socialist Party of Hungary. The Government took drastic steps to stamp out the Fascist-Nat. Socialist movement in the country. But the German annexation of Austria in March, and the lack of Italian support, ended any further plans for a Hapsburg restoration. So, with the end of Austria it's not an option any more. In brief, that option did exist but only for a short period of time, like 1937 - early 1938.
Second, all the newly formed states feared the restoration because of obvious territorial issues, the "Small Entente" would be the first to declare war.
Yes, of course, the neighbors of Austria and Hungary would not be happy about a Hapsburg restoration and possible reunification of Austria and Hungary. It sounds logical. That's why my restoration events trigger a number of '"Reaction to the Restoration" events throughout Europe, including France. And their reaction is primarily hostile.
And that's why, in real history, Schushnigg was so eager to obtain Italian support for that, because he, as well as Horthy, realized that w/o such support, Austria and Hungary on their own would not be able to achieve that goal.
But let's say Mussolini decides to support the Austrians and Hungarians. Would Romania declare war on Austria-Hungary supported by Italy ? I don't think so. Would Czechoslovakia want a war with Austria-Hungary ? I don't think so either. Yugoslavia ? I doubt it.
Don't forget that by that time Italy had already conquered Ethiopia and a whole coalition of Western Democracies failed to stop the Italians. Would those small European nations stop Italy in her decision to arrange a restoration of Austria-Hungary ? Of course not