As pointed out by the German general staff to Hitler, if Italy joined the Allies, it would require 5-10 German divisions to hold the passes through the Alps. If Italy joined the Axis, it would take at least 10-12 divisions to stiffen Italy enough to face the UK in Africa.So how would it be balanced if Italy was to not join the axis? If it didn't give Germany an advantage in another area then it would ensure the collapse of the faction at the start of 36!
The German Russian alliance option dropps axis allies as well as pushing the allies away from Russia. What would Italy not joining the axis do?
We know how the latter turned out. I would assume that Italy's participation in the Allies would also make it more difficult to secure the support of the US or several other countries. I can picture it being a much smaller and more localized conflict between UK/FRA/ITA and GER, with most of the world willing to let the troublemakers fight it out among themselves.
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