I must admit, I like this idea even better then the previous one of GER vs the World. I'll admit to being a bit worried about Italy as a choice; interesting, but it could go south quickly. You've already noticed some of its main issues; namely, a good chunk of your army is OOS quickly b/c of a closed Med and your divisions aren't so much technologically backward (they aren't great, but few of the nations have fantastic starting tech) as they are organizationally backward, being a bunch of binary divisions, as opposed to much more robust trinary ones like GER. If you can make those extra brigades to flesh out your divs quickly (maybe rush some MIL and then try to cycle/upgrade) you could see a great improvement to your army's capability. Hell, in this scenario being able to churn out stacks of MIL may be a very useful strategy, and MIL techs are cheaper to research than others, so you can get doctrines and equipment up to speed swiftly.
One more thing: did you mod out the nation creating decisions/events like the Spanish Civil War, creation of Croatia, and Menguko ones? And consider a PM sent; I'm thoroughly interested in this concept.
One more thing: did you mod out the nation creating decisions/events like the Spanish Civil War, creation of Croatia, and Menguko ones? And consider a PM sent; I'm thoroughly interested in this concept.